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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                                (AMENDMENT NO. 1)

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2002

                         COMMISSION FILE NUMBER 0-22056

                             RURAL/METRO CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              86-0746929
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

             8401 EAST INDIAN SCHOOL ROAD, SCOTTSDALE, ARIZONA 85251
               (Address of principal executive offices) (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (480) 994-3886

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                         PREFERRED STOCK PURCHASE RIGHTS
                                (Title of Class)

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]

     AS OF OCTOBER 24, 2002, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT,  COMPUTED BY REFERENCE TO THE CLOSING SALES
PRICE  OF  SUCH  STOCK  AS OF SUCH  DATE  ON THE  NASDAQ  SMALLCAP  MARKET,  WAS
$31,750,078 SHARES OF COMMON STOCK HELD BY EACH OFFICER AND DIRECTOR AND BY EACH
PERSON WHO OWNED 5% OR MORE OF THE  OUTSTANDING  COMMON STOCK HAVE BEEN EXCLUDED
IN THAT SUCH  PERSONS  MAY BE DEEMED TO BE  AFFILIATES.  THIS  DETERMINATION  OF
AFFILIATE STATUS IS NOT NECESSARILY CONCLUSIVE.

     As of October 24, 2002,  there were 16,138,195  shares of the  registrant's
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE

     Rural/Metro  Corporation  hereby amends Item 7 and Item 8 and adds Part III
to its Annual  Report on Form 10-K for the year ended June 30, 2002.

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                                TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS..............   1

PART I
  ITEM 1.  BUSINESS.........................................................   2
  ITEM 2.  PROPERTIES.......................................................  17
  ITEM 3.  LEGAL PROCEEDINGS................................................  17
  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............  18

PART II
  ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS............................................  19
  ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.............................  19
  ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS......................................  21
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......  47
  ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................  47
  ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE.......................................  94

PART III
  ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............  95
  ITEM 11. EXECUTIVE COMPENSATION...........................................  98
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
             AND RELATED STOCKHOLDER MATTERS................................ 104
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 105
  ITEM 14. CONTROLS AND PROCEDURES.......................................... 105

PART IV
  ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.. 106

SIGNATURES.................................................................. 111
<PAGE>
         FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS

     FORWARD  LOOKING  STATEMENTS.  Statements  in  this  Report  that  are  not
historical facts are hereby  identified as "forward looking  statements" as that
term is used under the  securities  laws. We caution  readers that such "forward
looking statements,"  including those relating to our future business prospects,
working capital,  accounts receivable collection,  liquidity, cash flow, capital
needs,  operational  results and compliance with debt facilities,  wherever they
appear in this Report or in other statements attributable to us, are necessarily
estimates  reflecting  the best judgment of our senior  management and involve a
number of risks and  uncertainties  that could  cause  actual  results to differ
materially from those suggested by the "forward looking  statements." You should
consider  such  "forward  looking  statements"  in  light of  various  important
factors,  including those set forth below and others set forth from time to time
in our  reports  and  registration  statements  filed  with the  Securities  and
Exchange Commission.

     These  "forward  looking  statements"  are found  throughout  this  Report.
Additionally,   the   discussions   herein  under  the  captions   "Business  --
Introduction",   "Business   --  Market   Reform  and   Changing   Reimbursement
Regulations",   "Business  --  Other  Governmental  Regulation",   "Business  --
Management Information Systems", "Business -- Billings and Collections",  "Legal
Proceedings",  and "Management's  Discussion and Analysis of Financial Condition
and  Results  of  Operations"  are  susceptible  to the risks and  uncertainties
discussed under the caption  "Management's  Discussion And Analysis Of Financial
Condition And Results Of Operations -- Risk Factors." Moreover, we may from time
to time make "forward  looking  statements"  about matters  described  herein or
other  matters  concerning  us. We disclaim any intent or  obligation  to update
"forward looking statements."

     All references to "we," "our," "us," or "Rural/Metro"  refer to Rural/Metro
Corporation,  and  its  predecessors,  direct  and  indirect  subsidiaries,  and
affiliates.  Rural/Metro  Corporation,  a Delaware  corporation,  is  strictly a
holding company. All services,  operations and management functions are provided
through its subsidiaries and affiliated entities.

     For a  discussion  of  certain  risks  associated  with our  business,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in Item 7 of this Report and, specifically,  "Risk Factors" included
in such Item 7.

                                       1
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                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     Founded in 1948, we are a leading  provider of medical  transportation  and
related services,  which include 911 emergency and  non-emergency  ambulance and
alternative transportation services to municipal,  residential,  commercial, and
industrial  customers.  We are  organized  as a  Delaware  corporation.  We also
provide  fire  protection  services  and other  safety  and  healthcare  related
services,  which include dispatch,  fleet services, and home health services. We
believe  we are the  only  multi-state  provider  of  both  ambulance  and  fire
protection  services  in the United  States  and that we rank among the  largest
private-sector providers of ambulance and fire protection services in the world.

     We  currently  serve  approximately  400  communities  in 26 states and the
District of Columbia.  Revenues for these  services are  primarily  derived from
fees charged for ambulance and fire protection services. Our domestic operations
generated revenues of approximately  $471.6 million,  $461.2 million, and $512.7
million  in the  fiscal  years  2002,  2001  and  2000,  respectively,  and  our
international  operations  generated  revenues of  approximately  $25.4 million,
$43.1 million and $57.4 million for the same respective periods.  See Note 16 to
our  Consolidated  Financial  Statements  for  financial  information  regarding
revenues from our ambulance and fire protection services. Also, see a discussion
of the  disposal  of our  foreign  operations  in our  "Business  -- Urgent Home
Medical Care."

     We provide ambulance  services under contracts with governmental  entities,
hospitals and other  healthcare  organizations.  We primarily derive our revenue
under these contracts through  reimbursements  under private insurance  programs
and government  programs such as Medicare and Medicaid,  as well as through fees
paid by patients utilizing our services.  Fire protection  services are provided
under  contracts with  municipalities,  fire districts or other agencies or on a
subscription fee basis to individual  homeowners or commercial  property owners.
Medical  transportation  and  related  services  and  fire  protection  services
accounted for  approximately 85% and 13%,  respectively,  of our revenue for the
fiscal year ended June 30, 2002, and 84% and 12%,  respectively,  of our revenue
for the fiscal year ended June 30, 2001.

     We grew  significantly  from the late 1970s  through the late 1990s through
internal growth and acquisitions. This growth, consisting mainly of acquisitions
in the 1990s as part of a  consolidation  of the  domestic  ambulance  industry,
provided us with  significant  market presence  throughout the United States and
parts of Latin America. To manage this growth, we invested in the development of
management and  operational  systems that have resulted in  productivity  gains.
While we believe that our prior growth strategy has created a strong platform of
core  businesses,  commencing in fiscal year 2000,  we focused on  strengthening
those core businesses and improving economies of scale. This focus included: (i)
sustaining and enhancing  positive cash performance,  (ii) improving the quality
and collection of revenue,  (iii) selective growth through expansion in existing
service areas, and (iv) development of regional  new-growth  opportunities.  Our
current business strategy includes  continued emphasis on these focal points and
on delivering high-quality, efficient and effective services to our customers.

INDUSTRY OVERVIEW

     MEDICAL TRANSPORTATION BUSINESS

     Based on generally  available  industry  data, it is estimated  that annual
expenditures for ambulance  services in the United States are between $7 billion
and $10 billion.  The medical  transportation  industry in the United  States is
segmented  into  two  market  types:   emergency  and  non-emergency   services.
Public-sector   entities,   private   companies,    hospitals,   and   volunteer
organizations provide ambulance services.  Public-sector entities often serve as
the first responder to requests for such emergency  ambulance services and often
provide emergency medical transportation. When the public sector serves as first
responder,  private  sector  companies  often serve as the second  responder and
support the first responder as needed.  The private sector provides the majority
of non-emergency  ambulance services. It is estimated that the ambulance service
industry includes approximately 12,000 service providers including approximately
1,500  private  providers,  1,200  hospital-owned  providers,  2,600  non-profit
entities, 2,700 government-owned providers, and 4,000 providers operated by fire
departments.  Most  commercial  providers are small  companies  serving one or a
limited number of markets.  Several  multi-state  providers,  including us, have
emerged through the acquisition and  consolidation of smaller  ambulance service
providers in recent years.

                                       2
<PAGE>
     FIRE PROTECTION BUSINESS

     Municipal fire  departments,  tax-supported  fire districts,  and volunteer
fire departments  constitute the principal providers of fire protection services
in the  United  States.  In most of the  communities  served by  municipal  fire
departments and tax-supported  fire districts,  the fire department is the first
to  respond  to a call for  emergency  medical  services.  Approximately  27,000
volunteer fire departments operate throughout the United States.  Volunteer fire
departments range from departments consisting entirely of volunteer personnel to
departments  that  utilize one or more paid  personnel  located at each  station
supplemented  by volunteers who proceed  directly to the fire scene. In addition
to providing fire protection  services to municipalities  and tax-supported fire
districts,  we and other members of the private sector  provide fire  protection
services to large industrial  complexes,  airports,  petrochemical plants, power
plants  and other  self-contained  facilities.  We also  provide  wildland  fire
fighting  services on a seasonal  basis as  requested  by various  forestry  and
governmental agencies.

     Based on our experience,  we believe that our ambulance and fire protection
services are complementary and benefit us by providing  diversification,  shared
resources, experience and competitive advantages in certain service areas.

HISTORICAL GROWTH IN MEDICAL TRANSPORTATION SERVICE EXPENDITURES; PRIMARY DEMAND
FACTORS

    Medical  transportation service expenditures in the United States have grown
as a result of an  increase in the number of  transports  and an increase in the
average  expenditures  per transport.  Several primary factors are cited for the
increase and continued demand of the emergency and non-emergency  transportation
services we provide:

     *    The  U.S.  population  is  aging.  Persons  over  the age of 65  years
          generally require more frequent hospital and ambulance  services.  The
          need for ambulance  services is increasing  with the aging of the Baby
          Boom population; about 62 million Americans will be age 65 or older in
          2025 compared to 35 million today. Such increase in demand affects all
          of our operations and is more pronounced in operations such as Arizona
          and  Florida   that  serve  higher   concentrations   of  the  elderly
          population.

     *    Size, growth and geographic distribution of the population also impact
          the medical  transportation  industry.  Local population increases and
          urban sprawl create added demand for medical  transportation  services
          and  a  steady,  corresponding  growth  rate.  Moreover,  there  is an
          increased  incidence  in  the  level  of  health  and  accident  risks
          associated with a growing  population.  In most cases, we believe that
          the  current  assets and  resources  of our  existing  operations  can
          service  the  demand   created  by  this  growth,   without  need  for
          significant additional capital expenditures.

     *    The increased  availability  of 911 emergency  service,  the impact of
          educational  programs  on its use,  and the  frequency  by which  some
          members of the population utilize hospital emergency rooms for medical
          care also have increased the number of ambulance transports.

     *    Increased  patient travel between  specialized  treatment  health care
          facilities  has increased  the demand for emergency and  non-emergency
          medical transportation services.

     *    The  greater  use of  outpatient  care  facilities  and  home  care in
          response to health care cost  containment  efforts also has  increased
          medical transport usage.

     *    The continuing demand for highly responsive emergency services, driven
          by regulatory and market forces, has further  necessitated an increase
          in expenditures  to maintain and enhance  emergency  medical  systems.
          High-quality medical care and response time criteria require ambulance
          service providers to acquire sophisticated emergency medical, dispatch
          and related  systems and equipment,  recruit and retain highly trained
          personnel, and create advanced emergency management protocols. Average
          expenditures per transport have increased incrementally as a result of
          the   additional   costs  to  meet   these   criteria   and   maintain
          high-performance systems.

     We believe  that we are well  situated  to  capitalize  on the needs of the
industry due to our emphasis on providing an  effective,  quality-care,  service
model, as enhanced by  cost-efficiencies  and centralized support functions from
both local and national economies of scale.

                                       3
<PAGE>
CONSOLIDATION OF THE MEDICAL TRANSPORT INDUSTRY

     During the  1990s,  the  fragmented  nature of the  medical  transportation
industry,  combined with limited  capital and  management  systems that typified
many smaller providers,  offered an opportunity to consolidate the industry with
the goal of achieving improved productivity and enhanced levels of service. As a
result, we and several other entities began consolidating the ambulance industry
through  mergers  and  acquisitions  of smaller  providers.  Thereafter,  as the
industry became less fragmented and acquisition  opportunities  diminished,  the
number of  acquisitions  slowed.  The  larger  consolidators,  such as  American
Medical  Response  (AMR)  and,  to a  lesser  extent,  Rural/Metro  Corporation,
incurred  significant  debt in order to  compete  for  acquisition  targets  and
subsequently  fund integration.  Accordingly,  we are a highly leveraged company
and face certain risk factors related to our debt structure. See Risk Factors --
"We  have  significant  indebtedness."  However,  we  believe  that  our  timely
participation in the consolidation of the industry has provided us with a strong
domestic  platform of core  operations  with a  substantial  revenue  base and a
marketable reputation for quality service, which enables us to capitalize on our
position  as a leader in the  industry  and build upon our  business in existing
service areas.

COMPETITION

     The  medical   transportation  service  industry  continues  to  be  highly
competitive,   notwithstanding   the  consolidation  of  the  1990s.   Principal
participants  include  governmental  entities (including fire districts),  other
national   ambulance  service   providers,   large  regional  ambulance  service
providers,  hospitals,  and  numerous  local and  volunteer  private  providers.
Counties,   municipalities,   fire   districts,   hospitals,   or  health   care
organizations  that  presently  contract  for  ambulance  services may choose to
provide  ambulance  services  directly in the future.  In addition,  many of our
contracts with governmental entities contain termination provisions for cause or
without  cause.  Some of our  competitors  may have  greater  capital  and other
resources  than we do and may not be  subject  to the same  level of  regulatory
oversight as we are. We are  experiencing  increased  competition from municipal
fire departments in providing emergency  ambulance service.  However, we believe
that the  non-emergency  transport  services market currently is unattractive to
municipal fire departments.

     We believe that  counties,  fire  districts,  and  municipalities  consider
quality of care, historical response time performance,  and cost to be among the
most important factors in awarding a contract,  although other factors,  such as
customer service,  financial  stability,  and personnel  policies and practices,
also may be considered.  Although  commercial  providers often compete intensely
for  business  within a  particular  community,  it is  generally  difficult  to
displace a provider  that has a history of  satisfying  the  quality of care and
response  time  performance   criteria  established  within  the  service  area.
Moreover,  significant start-up costs, together with the long-term nature of the
contracts under which services are provided and the relationships many providers
have within their communities,  create barriers for entry into new markets other
than through  acquisition.  We further believe that our status as a 911 provider
in a service area increases our visibility and stature, and enhances our ability
to compete  for  non-emergency  services  within  such  areas.  Because  smaller
ambulance  providers  typically  do not have the  infrastructure  to provide 911
services,  we  believe  we can  compete  favorably  with  such  competitors  for
non-emergency  ambulance  services  contracts in areas where we also provide 911
services.

     In the fire  protection  industry,  services for residential and commercial
properties are provided  primarily by  tax-supported  fire districts,  municipal
fire  departments,  and  volunteer  departments.  Private  providers,  like  us,
represent  a small  portion of the total fire  protection  market and  generally
provide  fire  protection  services  where  a  tax-supported  fire  district  or
municipality  has  decided to  contract  for the  provision  of fire  protection
services or has not assumed financial  responsibility for fire protection.  Fire
districts or  municipalities  may not  continue to contract for fire  protection
services.  In certain areas where no governmental  entity has assumed  financial
responsibility  for  providing  fire  protection,  we  provide  fire  protection
services on a subscription  basis.  Municipalities may annex a subscription area
or that area may be converted to a fire district that provides service directly,
rather than through a master contract.  As demonstrated by our attainment of new
contracts in the areas of industrial  fire and airport rescue and fire fighting,
we believe there are growth opportunities within these markets. Additionally, we
believe  our  effort  to grow this  business  has  helped  improve  the  overall
collectibility of our revenue due to the greater predictability of fees received
from fire protection service contracts.

                                       4
<PAGE>
MARKET REFORM AND CHANGING REIMBURSEMENT REGULATIONS

     Market  reform and the passage of the  Balanced  Budget Act of 1997,  along
with other  regulatory  changes,  have  impacted  and  reshaped  the health care
delivery   system  in  the  United  States  and,  by   extension,   the  medical
transportation  industry.  As with all other  health care  providers,  emergency
medical  service  providers,  like us, must comply with various  requirements in
order to  participate  in Medicare and  Medicaid.  Medicare is a federal  health
insurance  program  for the elderly and for  chronically  disabled  individuals,
which, among other things, pays for ambulance services when medically necessary.
Medicare uses a  charge-based  reimbursement  system for ambulance  services and
reimburses  80% of charges  determined to be  reasonable,  subject to the limits
fixed for the particular  geographic area. The patient is responsible for co-pay
amounts,  deductibles and the remaining balance, if we do not accept assignment,
and Medicare requires us to expend reasonable efforts to collect the balance. In
determining  reasonable  charges,  Medicare  considers and applies the lowest of
various charge factors,  including the actual charge,  the customary charge, the
prevailing  charge  in the  same  locality,  the  amount  of  reimbursement  for
comparable services, or the inflation-indexed charge limit.

     Medicaid is a combined  federal-state  program for  medical  assistance  to
impoverished individuals who are aged, blind, or disabled or members of families
with dependent  children.  Medicaid  programs or a state equivalent exist in all
states  in which we  operate.  Although  Medicaid  programs  differ  in  certain
respects  from state to state,  all are subject to federal  requirements.  State
Medicaid  agencies  have the  authority  to set levels of  reimbursement  within
federal guidelines.  We receive only the reimbursement permitted by Medicaid and
are not  permitted  to collect  from the  patient  any  difference  between  our
customary charge and the amount reimbursed.

     Like other Medicare and Medicaid providers,  we are subject to governmental
audits of our Medicare and Medicaid reimbursement claims. We take our compliance
responsibilities  very  seriously.  We  have  a  national  corporate  compliance
department that works closely with senior  management,  local managers,  billing
and collections  personnel,  and both the human resources and legal departments,
as well as  governmental  agencies  to ensure  substantial  compliance  with all
established regulations and procedures.  Nevertheless, despite our best efforts,
there can be no  assurance  that we can achieve  100%  compliance  at all times,
particularly  in  light  of the  complicated  and  ever-changing  nature  of the
reimbursement  regulations,  and the high volume of daily  transports we provide
nationwide.  Failure to comply may lead to a significant penalty or lower levels
of  reimbursement,  which could have a material  adverse effect on our business,
financial condition, results of operations and cash flows. From time to time, we
have taken corrective action to address billing  inconsistencies,  which we have
identified through our periodic,  internal audits of billing procedures or which
have been  brought to our  attention  through  governmental  examination  of our
records and  procedures.  These  matters  cover  periods  prior to and after our
acquisition  of  operations.  As part of our  commitment  to working  with those
governmental  agencies  responsible  for  enforcement  of Medicare  and Medicaid
compliance, we have voluntarily self-disclosed billing issues identified at some
of our operations.  We self disclosed billing inconsistencies from 1997 and 1998
in our Scranton,  Pennsylvania  operations  to the Office of Inspector  General,
which had been  instituted by the former owners of that  operation and continued
by us until new billing practices were established and the inconsistencies  were
discovered.  We also  entered  into,  and are  currently in  compliance  with, a
corporate  integrity  agreement  with the State of Ohio in  connection  with the
State's review of our Medicaid billing procedures and records. Due to the nature
of our business and our participation in the Medicare and Medicaid reimbursement
programs, we are involved in several pending regulatory reviews and/or inquiries
by  governmental  agencies.  We expect  these and other  regulatory  agencies to
continue their practice of performing  periodic reviews related to our industry.
We fully  cooperate  with such federal and state  agencies to provide  requested
information  and to incorporate any  recommended  modifications  of our existing
compliance programs.

     Government  funding for health care  programs is subject to  statutory  and
regulatory   changes,   administrative   rulings,   interpretations  of  policy,
determinations by intermediaries and governmental funding  restrictions,  all of
which could materially impact program  reimbursements for ambulance services. In
recent years,  Congress has  consistently  attempted to curb federal spending on
such  programs.  In June 1997,  the Health Care  Financing  Administration,  now
renamed the Center for Medicare and Medicaid  Services  (CMS),  issued  proposed
rules that would revise Medicare  policy on the coverage of ambulance  services.
The proposed rules were the result of a mandate under the Balanced Budget Act of
1997 to establish a national fee schedule for payment of ambulance services that
would control  increases in expenditures  under Part B of the Medicare  program,
establish  definitions for ambulance  services that link payments to the type of
services furnished,  consider appropriate regional and operational  differences,
and consider adjustments to account for inflation, among other provisions.

                                       5
<PAGE>
     On April 1, 2002,  the Medicare  Ambulance  Fee Schedule  Final Rule became
effective. The Final Rule categorizes seven levels of ground ambulance services,
ranging from basic life support to specialty care transport,  and two categories
of air  ambulance  services.  The base rate  conversion  factor for  services to
Medicare  patients was set at $170.54,  plus separate  mileage  charges based on
specified relative value units for each level of ambulance service.  Adjustments
also were included to recognize  differences  in relative  practice  costs among
geographic  areas,  and  higher  transportation  costs that may be  incurred  by
ambulance providers in rural areas with low population  density.  The Final Rule
requires ambulance  providers to accept the assigned  reimbursement rate as full
payment,  after  patients  have  submitted  their  deductible  and 20 percent of
Medicare's  fee for service.  In addition,  the Final Rule calls for a five-year
phase-in  period to allow time for providers to adjust to the new payment rates.
The fee schedule  will be phased in at  20-percent  increments  each year,  with
payments being made at 100 percent of the fee schedule in 2006 and thereafter.

     We believe the Medicare  Ambulance Fee Schedule will cause a neutral impact
on our medical  transportation revenue at incremental and full phase-in periods,
primarily due to the geographic  diversity of our U.S.  operations.  These rules
could,  however,  result in contract  renegotiations  or other  actions by us to
offset  any  negative  impact at the  regional  level that could have a material
adverse effect on our business,  financial condition,  cash flows and results of
operations.  Changes in reimbursement  policies,  or other governmental  action,
together with the financial  challenges of some private,  third-party payers and
budget  pressures  on other  payer  sources  could  influence  the  timing  and,
potentially, the receipt of payments and reimbursements. A reduction in coverage
or  reimbursement  rates  by  third-party  payers,  or an  increase  in our cost
structure  relative to the rate increase in the Consumer  Price Index (CPI),  or
costs  incurred  to  implement  the  mandates of the fee  schedule  could have a
material adverse effect on our business,  financial  condition,  cash flows, and
results of operations.

OTHER GOVERNMENTAL REGULATIONS

     Our  business  is also  subject to other  governmental  regulations  at the
federal,  state, local, and foreign levels. At the federal level, we are subject
to regulations under the Occupational  Safety and Health  Administration  (OSHA)
designed to protect our employees  and  regulations  under the Health  Insurance
Portability and Accountability Act of 1996 (HIPAA) which protects the privacy of
patients'  health  information  handled by health  care  providers.  The federal
government  also  recommends  standards for ambulance  design and  construction,
medical training  curriculum,  and designation of appropriate  trauma facilities
and  regulates  our radio  licenses.  Various  state  agencies  may modify these
standards or require additional standards.

     Each state where we operate  regulates various aspects of its ambulance and
fire  business.  These  regulations  may vary widely from state to state.  State
requirements   govern  the  licensing  or  certification  of  ambulance  service
providers,  training  and  certification  of  medical  personnel,  the  scope of
services  that may be  provided  by medical  personnel,  staffing  requirements,
medical  control,  medical  procedures,  communication  systems,  vehicles,  and
equipment.  State or local  government  regulations or  administrative  policies
regulate  rate  structures  in  most  states  in  which  we  conduct   ambulance
operations.  The process of determining rates includes cost reviews, analyses of
levels of  reimbursement  from all  sources,  and  determination  of  reasonable
profits.  In certain  service  areas in which we are the  exclusive  provider of
services,  the  municipality  or fire  district  sets the  rates  for  emergency
ambulance  services  pursuant to a master contract and establishes the rates for
general ambulance services that we are permitted to charge.

     Applicable  federal,  state,  local,  and foreign laws and  regulations are
subject to change.  We believe that we currently are in  substantial  compliance
with applicable regulatory requirements. These regulatory requirements, however,
may require us in the future to increase our capital and operating  expenditures
in order to maintain  current  operations or initiate new operations.  See "Risk
Factors --Certain state and local governments regulate rate structures and limit
rates of return," "-- Numerous governmental entities regulate our business," and
"-- Health care reforms and cost containment may affect our business"  contained
in Item 7 of this Report.

                                       6
<PAGE>
OUR CURRENT SERVICE AREAS

     We currently  provide our services in approximately  400 communities in the
following 26 states and the District of Columbia:

     Alabama           Iowa               New York              Tennessee
     Arizona           Kentucky           North Dakota          Texas
     California        Louisiana          Ohio                  Virginia
     Colorado          Maryland           Oregon                Washington
     Florida           Mississippi        Pennsylvania          Wisconsin
     Georgia           Nebraska           South Carolina
     Indiana           New Jersey         South Dakota

     We  provide  ambulance  services  in each of these  states,  including  the
District  of  Columbia,  primarily  under the  names  Rural/Metro  Ambulance  or
Rural/Metro  Medical  Services  and in certain  areas of Arizona  under the name
Southwest  Ambulance,  except in Oregon,  North  Dakota and  Wisconsin  where we
exclusively provide fire protection services.  We also operate under other names
depending  upon local  statutes  or  contractual  agreements.  We  provide  fire
protection services under the name Rural/Metro Fire Department in 12 states, and
in Oregon also under the name Valley Fire Services.

     We  generally  provide  our  ambulance  services  pursuant to a contract or
certificate of necessity on an exclusive or  nonexclusive  basis. We provide 911
emergency  ambulance  services primarily pursuant to contracts or as a result of
providing fire  protection  services.  In certain service areas, we are the only
provider of both emergency ambulance and non-emergency  ambulance  services.  In
other service areas, we compete for non-emergency ambulance contracts.

MEDICAL TRANSPORTATION SERVICES

     EMERGENCY AMBULANCE SERVICES

     We   generally   provide   emergency   ambulance   response   and   medical
transportation services pursuant to contracts with counties, fire districts, and
municipalities.  These contracts  typically appoint us as the exclusive provider
of 911 emergency  ambulance  services in designated service areas and require us
to respond to every 911  emergency  medical  call in those  areas.  The level of
response to the call is dependent  upon the  underlying  contract.  We typically
respond to virtually all 911 calls with  Advanced  Life Support (ALS)  ambulance
units, unless otherwise specified by contract.

     ALS  ambulances are staffed with either two paramedics or one paramedic and
an emergency medical  technician (EMT) and are equipped with ALS equipment (such
as  cardiac  monitors,  defibrillators,  advanced  airway  equipment  and oxygen
delivery systems) as well as pharmaceuticals and medical supplies.

     Upon arrival at an  emergency,  the ALS crew members  deploy  portable life
support equipment,  ascertain the patient's medical condition, and, if required,
administer  advanced life support  techniques  and  procedures  that may include
tracheal intubation, cardiac monitoring,  defibrillation of cardiac arrhythmias,
and the  administration  of  medications  and  intravenous  solutions  under the
direction of a  physician.  The crew also may perform  Basic Life Support  (BLS)
services,  which  include  cardiopulmonary  resuscitation  (CPR),  basic  airway
management,  and basic first aid  including  splinting,  spinal  immobilization,
recording of vital signs and other non-invasive procedures. As soon as medically
appropriate, the patient is placed on a portable gurney and transferred into the
ambulance. While one crew member monitors and treats the patient, the other crew
member  drives the ambulance to a hospital  designated  either by the patient or
the applicable medical protocol.  While on scene or en route, the ambulance crew
alerts the hospital regarding the patient's medical condition, and if necessary,
the attending  ambulance crew member seeks advice from an emergency physician as
to treatment.  Upon arrival at the hospital,  the patient  generally is taken to
the emergency  department where care is transferred to the emergency  department
staff.

     NON-EMERGENCY AMBULANCE SERVICES

     We also provide ambulance services to patients requiring either advanced or
basic levels of medical  supervision  and treatment  during transfer to and from
residences, hospitals, long-term care centers, and other health care facilities.
These services may be provided when a home-bound patient requires examination or
treatment at a health care facility or when a hospital  inpatient requires tests

                                       7
<PAGE>
or treatments  (such as MRI testing,  CAT scans,  dialysis,  or chemotherapy) at
another facility. We utilize ALS or BLS ambulance units to provide non-emergency
ambulance  services,  depending  on the  patient's  needs and the  proximity  of
available  units.  We generally  staff our BLS ambulance units with two EMTs and
equip these units with medical  supplies and  equipment  necessary to administer
first aid and basic medical treatment.

     We provide ambulance  services,  critical care transports,  and non-medical
transportation services pursuant to contracts with governmental agencies, health
care facilities,  or at the request of a patient. Such services may be scheduled
in advance or  provided on an  as-needed  basis.  Contracts  with  managed  care
organizations  provide  for  reimbursement  on a  per-transport  basis  or  on a
capitated basis under which we receive a fixed fee, per person, per month.

     CRITICAL CARE TRANSPORT SERVICES

     We provide critical care transport  services to medically unstable patients
(such as cardiac patients and neonatal patients) who require critical care while
being transported between health care facilities.  Critical care services differ
from ALS services in that the ambulance may be equipped with additional  medical
equipment  and may be staffed  by a medical  specialist  provided  by us or by a
health care facility to attend to a patient's special medical needs.  Typically,
staffing  may include  the use of critical  case  trained  professional  nurses,
respiratory therapists and/or neo-natal nurse specialists.

     ALTERNATIVE TRANSPORT SERVICES

     In addition to ambulance services,  we provide  non-medical  transportation
for the handicapped and certain  non-ambulatory  persons in very limited service
areas. Such  transportation  generally takes place between residences or nursing
homes and hospitals or other health care facilities.  In providing this service,
we typically utilize vans that contain hydraulic wheelchair lifts or ramps.

     DISASTER RESPONSE TEAMS

     Aside from our day-to-day  operations,  we maintain disaster response teams
that are occasionally called upon by the federal government, through the Federal
Emergency  Management Agency (FEMA), and by state,  county and local governments
to assist in responding to local or national fire and medical  emergencies.  For
example,  at the  request  of FEMA and the New York State  Emergency  Management
Office,  we provided  assistance  for the efforts in New York City following the
September 11, 2001  terrorist  attacks.  We staff these  emergencies  based upon
available resources from our existing pool of employees and equipment around the
country,  committing  resources  in a  manner  that is  designed  to  avoid  any
interruption  of  service in our  existing  service  areas.  Such  services  are
typically paid for and provided on a fee-for-service basis pursuant to contracts
with the requesting agency or governmental entity.

     URGENT HOME MEDICAL CARE

     Due to the deteriorating  economic conditions and continued  devaluation of
the local currency,  we reviewed our strategic  alternatives with respect to the
continuation  of operations in Latin America,  including  Argentina and Bolivia,
and determined  that we would benefit from focusing on our domestic  operations.
Effective  September  27, 2002, we sold our Latin  American  operations to local
management.  The following describes the type of revenue that is included in the
accompanying  Consolidated  Financial  Statements  related to our  operations in
Latin America.

     In Argentina,  individual and business  customers prepay monthly for urgent
home medical care and ambulance services. Personnel conduct telephone triage and
prioritize the dispatch of services to subscribers.  Mobile services may include
the  dispatch  of  physicians  to  the  patient  in an  ambulance  for  serious,
life-threatening  situations,  or more frequently,  in the physician's car, thus
covering a wider scope of service than the traditional  U.S.  ambulance  service
model.

    In Argentina,  doctors and nurses  perform  urgent and primary care services
for our business  customers.  Argentine  doctors are trained in medicine and are
licensed as such in Argentina at both the national  and, in certain  localities,
the local level.  There are no  continuing  education  requirements.  Generally,
nurses are trained over periods ranging from six months to four years after high
school in accordance  with local programs.  Accordingly,  as each nurse receives
additional training, his or her scope of practice increases.

                                       8
<PAGE>
     MEDICAL PERSONNEL AND QUALITY ASSURANCE

     Paramedics and EMTs must be state certified in order to transport  patients
and to  perform  emergency  care  services.  Certification  as an  EMT  requires
completion of a minimum of 164 hours of training in a program  designated by the
United States Department of Transportation  and supervised by state authorities.
EMTs also may complete  advanced training courses to become certified to provide
certain   additional   emergency  care  services,   such  as  administration  of
intravenous fluids and advanced airway management.  In addition to completion of
the  EMT  training  program,  the  certification  as a  paramedic  requires  the
completion  of more  than  800  hours  of  training  in  advanced  patient  care
assessment, pharmacology, cardiology, and clinical and field skills. Many of the
paramedics  currently  employed  by us  served  as EMTs  for us  prior  to their
certification  as  paramedics.  We  are  subject  to  nationwide  and  area-wide
shortages of qualified EMTs and paramedics. We compete with hospitals, municipal
fire  departments and other health care providers for these valued  individuals.
We have  undertaken  efforts to minimize the effect of these  shortages and have
implemented a number of programs to retain and attract a quality workforce.

     Local  physician  advisory  boards and medical  directors  develop  medical
protocols to be followed by paramedics  and EMTs in a service area. In addition,
instructions are conveyed on a case-by-case basis through direct  communications
between the ambulance  crew and hospital  emergency room  physicians  during the
administration  of advanced life support  procedures.  Both  paramedics and EMTs
must complete continuing education programs and, in some cases, state supervised
refresher training examinations to maintain their certifications.  Certification
and continuing education  requirements for paramedics and EMTs vary among states
and counties.

     We maintain a commitment  to provide high  quality  pre-hospital  emergency
medical care. In each location in which we provide services, a medical director,
who  usually  is a  physician  associated  with a  hospital  we serve,  monitors
adherence to medical protocol and conducts periodic audits of the care provided.
In addition,  we hold  retrospective  care audits with our employees to evaluate
compliance with medical and performance standards.

     We are members of a number of other professional organizations, namely, the
American  Ambulance  Association,  National  Emergency Number (911) Association,
American  College  of  Emergency  Physicians  and  National  Association  of EMS
Physicians.  In those  states where we provide  service,  we are involved in the
state  ambulance  association,   if  one  exists,  and  in  many  instances  our
involvement  includes  holding  elected  positions.  In  addition,  many  of our
employees are members of the National  Association of EMTs, National Association
of EMS Educators and other EMS organizations. We were one of the first ambulance
service  providers  to obtain  accreditation  for many of our  larger  ambulance
operations from the Commission on Accreditation of Ambulance  Services,  a joint
program between the American  Ambulance  Association and the American College of
Emergency   Physicians.   The  process  is  voluntary  and  evaluates   numerous
qualitative factors in the delivery of services.  We believe  municipalities and
managed  care  providers  may consider  accreditation  as one of the criteria in
awarding contracts in the future.

FIRE PROTECTION SERVICES

     Fire  protection  services  consist  primarily  of  fire  prevention,  fire
suppression, and first responder medical care. We provide various levels of fire
protection services,  ranging from fire stations that are fully staffed 24 hours
per day to reserve stations. We generally provide our services to municipalities
and other  governmental  bodies pursuant to master  contracts funded through the
tax base and to residences, commercial establishments,  and industrial complexes
pursuant to subscription fee and other fee-for-service arrangements. Federal and
state  governments  contract with us from time to time to suppress  wildfires on
government lands.

     We have placed fire  prevention  and education in the forefront of our fire
protection  services and have developed a  comprehensive  program to prevent and
minimize fires. We believe that effective fire protection requires the intensive
training  of  personnel,  the  effective  utilization  of  fire  equipment,  the
establishment  of effective  communication  centers for the receipt of emergency
calls and the  dispatch  of  equipment  and  personnel,  the  establishment  and
enforcement of strict fire codes, and community educational efforts.  Based upon
generally  available  industry data, we believe that fire loss per capita in our
primary fire areas has been substantially less than the national average.

     FIRE PROTECTION PERSONNEL

     Our ability to provide our fire protection services at relatively low costs
results from our efficient  use of personnel in addition to our fire  prevention
efforts.  Typically,  personnel costs represent more than two-thirds of the cost
of providing  fire  protection  services.  We have been able to reduce our labor

                                       9
<PAGE>
costs through a system that utilizes full-time firefighters complemented by paid
part-time  reservists as well as a modified every other day shift  schedule.  By
using  trained  reservists  on an  as-needed  basis,  we  have  the  ability  to
supplement full-time firefighters on a cost-effective basis.

     All full-time and reserve  firefighters  undergo extensive training,  which
exceeds the standards  recommended by the National Fire  Protection  Association
(NFPA),  and must  qualify for state  certification  before  being  eligible for
full-time  employment  by us.  Because  approximately  70%  to  80% of our  fire
response  activity   consists  of  emergency   medical  response,   all  of  our
firefighters  are  trained  EMTs  or  paramedics.   Ongoing  training   includes
instruction in new fire service tactics and fire fighting  techniques as well as
continual physical conditioning.

     FIRE RESPONSE

     An alarm typically  results in the dispatch of one or more engine companies
(each of which consists of an engine and two to four  firefighters,  including a
captain),  a fire chief, and such other personnel and equipment as circumstances
warrant.  The amount of equipment and personnel depends upon the type, location,
and severity of the incident. We utilize our dispatch capabilities to reposition
equipment and  firefighters to maximize the availability and use of resources in
a cost-effective manner.

     FIRE PREVENTION

     We believe that fire prevention programs result in both lower fire loss and
significant   overall  cost  savings.   Our  fire  prevention  programs  include
recommendations  for and the  encouragement of various fire prevention  methods,
including fire code design,  building  design to inhibit the spread of fire, the
design  of  automatic  fire  suppression  sprinklers,  fire  detector  and smoke
detector  installations,  the  design  of  monitoring  and  alarm  systems,  the
placement and inspection of fire hydrants, fire code inspection and enforcement,
and the  determination  of fire cause and origin in arson  suspected  fires.  In
addition,  our personnel perform community education programs designed to reduce
the risk of fire and increase our community profile.

     We believe that our long-standing public/private relationship with the City
of  Scottsdale  provides  an  example  of  an  effective,   cost-efficient  fire
protection  program.  The Scottsdale  program  emphasizes our philosophy of fire
prevention.  With our  cooperation  and  assistance,  the City of Scottsdale has
designed   comprehensive  fire  prevention   measures,   including  fire  codes,
inspections,  and sprinkler and smoke detector ordinances.  We believe that as a
result of strict fire codes,  the  enactment of a sprinkler  ordinance,  and the
effectiveness of the services we provide,  Scottsdale's per capita cost for fire
protection is lower than for other cities of similar size.

     WILDLAND FIRE PROTECTION SERVICES

     We provide disaster response fire protection services when requested by the
federal  government,  through the U.S.  Forest Service,  and other  governmental
entities to assist in responding to fire  emergencies  such as the multiple wild
land fires that occurred  during the past year in the western United States.  We
staff these emergencies based upon available resources from our existing pool of
employees and  equipment  around the country,  committing  resources in a manner
that is designed to avoid any  interruption  of service in our existing  service
areas.  Such services are typically  paid for and provided on a  fee-for-service
basis pursuant to contracts with the requesting agency or governmental entity.

     INDUSTRIAL FIRE PROTECTION SERVICES

     We provide  fire  protection  services  and,  on a limited  basis,  unarmed
security services to large industrial  complexes,  petrochemical  plants,  power
plants, and other self-contained  facilities. The combination of fire protection
services with security services in large industrial  complexes has the potential
to provide  for  greater  efficiency  and  utilization  in the  delivery of such
services  and to result in reduced  cost to our  industrial  customers  for such
services. We have contracts ranging up to five years in duration and expiring at
various dates up June 30, 2005 to provide  firefighting and hazardous  materials
response  services at locations in several  states.  We intend to pursue similar
contracts in the future.

     AIRCRAFT, RESCUE AND FIRE FIGHTING SERVICES (ARFF)

     We also provide aircraft rescue and  firefighting  services at a variety of
airports  throughout the United States,  including the FedEx Express airport hub
in Memphis,  Tennessee, and the international airport in Port Columbus, Ohio. In

                                       10
<PAGE>
addition  to  aircraft  rescue  and  fire  fighting  services,  we also  provide
structural  firefighting and emergency  medical response for airport  terminals.
Our ARFF  firefighters,  many of whom have extensive  military and civilian ARFF
experience,  have completed  comprehensive  professional training programs.  Our
personnel are cross-trained as emergency medical  technicians or paramedics,  as
well as in hazardous  materials response.  Our capabilities  include value-added
services  such as first  responder  medical  service  in  support  of local fire
departments  for  in-terminal  medical  emergencies,  safety  training  for fuel
handlers and other airport personnel, and fire prevention activities.  We intend
to  continue  to  grow  this  aspect  of  our  business   strategically  through
competitive proposals and bidding processes.

CONTRACTS

     We enter into contracts with counties, municipalities,  fire districts, and
other  governmental  entities to provide  911  emergency  ambulance  services in
designated service areas. These contracts typically specify maximum fees that we
may charge and set forth required  criteria,  such as response  times,  staffing
levels,  types of vehicles  and  equipment,  quality  assurance,  indemnity  and
insurance coverage. In certain instances,  we are required by contract or by law
to  post  a  surety  bond  or  other   assurance  of  financial  or  performance
responsibility.  The rates that we may charge  under a  contract  for  emergency
ambulance  services  depends  largely on  patient  mix;  the nature of  services
rendered;  the local political climate;  and the amount of subsidy, if any, that
will be  considered  by a  governmental  entity to cover costs of  uncompensated
care. Our four largest  ambulance  contracts  accounted for approximately 11% of
total revenue  during fiscal year 2002,  10% of total revenue during fiscal year
2001, and 9% of total revenue during fiscal year 2000.

     We provide fire protection  services  pursuant to master  contracts or on a
subscription   basis.   Master  contracts  provide  for  negotiated  rates  with
governmental entities. Certain contracts are performance-based and require us to
meet certain  dispatch and response times in a certain  percentage of responses.
These  contracts also set maximum  thresholds for variances from the performance
criteria.  These  contracts  establish  the level of  service  required  and may
encompass fire prevention and education  activities as well as fire suppression.
Other  contracts are  level-of-effort  based and require us to provide a certain
number of personnel for a certain time period for a particular function, such as
fire prevention or fire  suppression.  We provide fire protection  services on a
subscription  basis in areas  where  no  governmental  entity  has  assumed  the
financial responsibility for providing fire protection. We derived approximately
46% of our fire  protection  service revenue from  subscriptions  in fiscal year
2002,  45% in fiscal year 2001, and 45% in fiscal year 2000.  Fire  subscription
rates are not  currently  regulated  by any  governmental  agency in our service
areas.

     Our contracts  generally  extend for terms of two to five years. We attempt
to renegotiate  contracts in advance of the  expiration  date and generally have
been successful in these  renegotiations.  We monitor our performance under each
contract.  From time to time, we may decide that certain contracts are no longer
favorable  and may seek to modify or  terminate  these  contracts.  At any given
time, we estimate that we have approximately 125 agreements with counties,  fire
districts,  and  municipalities  for ambulance  services and for fire protection
services.  The following table sets forth certain information  regarding our six
largest  contracts,  based on  revenue,  at June 30,  2002 with  counties,  fire
districts,  and  municipalities  for ambulance  services and for fire protection
services.

<TABLE>
<CAPTION>
                                            TERM IN YEARS    EXPIRATION DATE      TYPE OF SERVICE (1)
                                            -------------    ---------------      -------------------
<S>                                         <C>              <C>                  <C>
     Ambulance
       Orange County, Florida (2).........        4            October 2006           911/General
       Rochester, New York (3)............        4           September 2006          911/General
       Knox County, Tennessee (4).........        5             July 2007             911/General
       Fort Worth, Texas (5)..............        5            August 2004            911/General
     Community Fire
       Scottsdale, Arizona (6)............        3             June 2005           Fire Protection
     Public/Private Alliance
       San Diego, California (7)..........        5             June 2005             911/General
</TABLE>

----------
(1)  Type of service for ambulance  contracts indicates whether 911 emergency or
     general ambulance services or both are provided within the service area.

(2)  The contract was first entered into in 1962 by a provider that was acquired
     by us in July 1984.

                                       11
<PAGE>
(3)  The contract was first entered into in 1988 by a provider that was acquired
     by us in May 1994.

(4)  The contract was first entered into in July 1985.

(5)  The contract was first entered into in August 1999.

(6)  The contract was first entered into in 1952 by us.

(7)  The  contract was first  entered into in May 1997 and is effective  through
     June 2005. The contract has a three-year  renewal option exercisable by our
     customer.

     In addition to the six largest contracts,  based on revenue,  listed above,
we were awarded several significant contracts during fiscal year 2002:

CSA-17,  INCLUDING  DEL MAR,  RANCHO  SANTA FE,  ENCINITAS  AND SOLANA  BEACH IN
NORTHERN SAN DIEGO COUNTY,  CALIFORNIA -- San Diego Medical Services Enterprise,
L.L.C.,  our partnership  with the City of San Diego, was awarded the exclusive,
911 ambulance  transportation  contract to provide  emergency  services to these
four  communities,  which  comprise  County  Service  Area 17. The  contract  is
estimated to generate  approximately  $2 million of annual  revenue and includes
two,  two-year  renewal options at the discretion of the contracting  authority.
Service began Sept. 1, 2001.

CORNING,  NEW YORK -- We were awarded a new, three-year contract in January 2002
to continue providing exclusive  ambulance services to the City of Corning,  New
York. The contract is estimated to generate  approximately  $1 million of annual
revenue and extends our 50-year history as an ambulance  provider in the Corning
area.

YOUNGSTOWN, OHIO -- We were awarded a two-year contract that began March 1, 2002
to continue as the  exclusive  provider of 911 emergency  ambulance  services in
Youngstown,  Ohio.  The  contract is expected  to  generate  approximately  $1.3
million of annual revenue.

UNIVERSITY  OF COLORADO  HEALTH  SCIENCES  CENTER -- We extended the services we
provide to the  University of Colorado  Health  Sciences  Center through two new
contracts that began July 1, 2001.  Under a new,  five-year  contract we provide
critical  care  transport  services to the  hospital's  campuses  and  treatment
facilities.  We  simultaneously  renewed our  contract to provide  non-emergency
ambulance transportation to the Health Science Center and related facilities for
an additional five years.  The contracts are expected to generate  approximately
$1.3 million of annual revenue.

CITGO PETROLEUM  CORPORATION -- Our specialty fire division continues to provide
industrial fire protection services to Citgo Petroleum's Lake Charles, Louisiana
refinery under a new,  three-year contract that began July 1, 2002. The contract
is expected to generate approximately $1.2 million of annual revenue.

     Additionally,  we were awarded the following  significant  contract  during
fiscal  year 2002 under  which we will begin to provide  services in fiscal year
2003:

FORSYTH COUNTY,  GEORGIA -- We were awarded an exclusive,  five-year contract to
provide 911 emergency  ambulance  services beginning July 1, 2002. The contract,
which is expected to generate  approximately  $2.4  million of annual  revenue ,
provides for automatic annual renewals and includes a yearly subsidy paid by the
county to cover costs that arise due to uncompensated care.

     We also enter into  contracts  with  hospitals,  nursing  homes,  and other
health care  facilities to provide  non-emergency  and critical  care  ambulance
services.  These  contracts  typically  designate us as the preferred  ambulance
service provider contacted to provide non-emergency  ambulance services to those
facilities and typically permit us to charge a base fee, mileage  reimbursement,
and additional fees for the use of particular medical equipment and supplies. We
provide a discount in rates charged to facilities that assume the responsibility
for payment of the charges to the persons receiving services. At any given time,
we  have   approximately   1,000  agreements  with  counties,   fire  districts,
municipalities,  airports, hospitals, health care facilities, nursing homes, and
other  contracting  entities  for  ambulance  services  or for  fire  protection
services.

     During  fiscal  years 2000 and 2001,  in  connection  with our domestic EMS
restructuring initiative, we renegotiated a number of contracts where the rates,
services or market  conditions were not conducive to operational  profitability.
Additionally,  we exited  certain  contracts in  connection  with the closure or
downsizing of financially  under-performing service areas, the majority of which

                                       12
<PAGE>
solely provided  non-emergency  ambulance  services and which could not meet our
financial  performance criteria on a sustained basis. In each situation where we
have closed a service area, our operational teams have endeavored to ensure that
an orderly  transition occurs with no service  interruptions.  In many areas, we
worked closely with the community,  local governmental  entities and alternative
providers until our departure date, which in some cases extended for a number of
months so that the transition could be properly effectuated. We believe that our
actions  under  these  circumstances  are  consistent  with our  commitment  and
reputation as a dependable,  high-quality service provider. See "Risk Factors --
We depend on certain business relationships" contained in Item 7 of this Report.

     Counties, fire districts,  and municipalities  generally award contracts to
provide 911 emergency services either through requests for competitive proposals
or bidding  processes.  In some instances in which we are the existing provider,
the county or municipality may elect to renegotiate our existing contract rather
than re-bid the contract.  We will continue to seek to enter into public/private
alliances to compete for new business. For example, during fiscal year 2002, our
alliance with San Diego Fire & Life Safety  Services  allowed the partnership to
bid for and win  multi-year  contracts  to provide  911 and  ambulance  services
throughout the City of San Diego and Northern San Diego County.

     We market our non-emergency medical  transportation  services to hospitals,
health  maintenance  organizations,  convalescent  homes,  and other health care
facilities that require a stable and reliable  source of medical  transportation
for their patients. We believe that our status as a 911 provider in a designated
service area  increases our  visibility  and enhances our marketing  efforts for
non-emergency  services  in that  area.  Contracts  for  non-emergency  services
usually  are based on  criteria  (such as  quality  of care,  customer  service,
response time,  and cost) similar to those in contracts for emergency  services.
We  further  believe  that  our  strategy  to  expand  and  strengthen  regional
operations will better position us to serve the developing managed care market.

     We market our fire protection services to subscribers in rural and suburban
areas,  volunteer staffed fire departments,  tax-supported  fire districts,  and
large  industrial  complexes,  petrochemical  plants,  power  plants,  and other
self-contained  facilities.  Contract  and/or  subscription  fees are  collected
annually in advance.  In the event that we provide service for a non-subscriber,
we directly bill the property owner for the cost of services  rendered.  We also
provide  fire  protection  services  to newly  developed  communities  where the
subscription fee may be included in the homeowner's association assessment.

MANAGEMENT INFORMATION SYSTEMS

     We utilize sophisticated  management  information systems, which we believe
enhance the productivity of our existing operations.  These systems permit us to
achieve  efficiencies  in  the  areas  of  billings,  collections,   purchasing,
accounting, cash management, human resources, compliance, informational systems,
legal, risk management, and in the utilization of personnel and equipment.

     Our centralized  systems  significantly  augment local processes and permit
managers to direct their  attention  primarily to the  performance and growth of
their operations. Centralized billing and collection procedures provide for more
efficient tracking and collection of accounts receivable. Centralized purchasing
permits  us to achieve  discounts  in the  purchase  of  medical  equipment  and
supplies. Other centralized  infrastructure components such as accounts payable,
legal, compliance, human resources and risk management provide the capability to
purchase  related  products and services on a company-wide  basis,  identify and
respond to company-wide  trends, and provide internal support and administrative
services in a more  cost-effective,  efficient and consistent  manner across all
operations.  We provide and  allocate  costs for these  centralized  systems and
services pursuant to administrative services agreements with each of Rural/Metro
Corporation's direct and indirect wholly-owned subsidiaries.  Accordingly,  each
subsidiary's   operational  management  has  the  ultimate   responsibility  and
decision-making  authority for the  utilization and direction of these corporate
services, so as to best serve the needs of their individual markets.

     We  believe  our  investment  in  management  information  systems  and our
effective use of these systems represent key components of our success.  Process
and personnel  improvements in these areas are  continuing.  We are committed to
further  strengthening  the  productivity  and  efficiency  of our  business and
believe  that our  management  systems  have the  capability  to support  future
growth.

                                       13
<PAGE>
DISPATCH AND COMMUNICATIONS

     We use system status plans and flexible  deployment systems to position our
ambulances  within a designated  service area because effective fleet deployment
represents  a key  factor  in  reducing  response  times  and  efficient  use of
resources. We analyze data on traffic patterns,  demographics,  usage frequency,
and similar  factors  with the aid of  computers  to help us  determine  optimal
ambulance deployment and selection.  The center that controls the deployment and
dispatch of ambulances  in response to calls for ambulance  service may be owned
and operated  either by the  applicable  county or  municipality  or by us. Each
control  center  utilizes  computer  hardware  and  software  and  sophisticated
communications  equipment and maintains  responsibility for fleet deployment and
utilization 24 hours a day, seven days a week.

     Depending on the  emergency  medical  dispatch  system used in a designated
service area,  the public  authority  that receives 911 emergency  medical calls
either  dispatches  our  ambulances  directly from the public  control center or
communicates information regarding the location and type of medical emergency to
our control center,  which in turn  dispatches  ambulances to the scene. In most
service areas,  our control  center  receives the call from the police after the
police have  determined  the call is for  emergency  medical  services.  When we
receive a 911 call, we dispatch one or more ambulances directly from our control
center while the call taker  communicates  with the caller.  All call takers and
dispatchers  are  trained  EMTs or  Emergency  Medical  Dispatchers  (EMD)  with
additional  training  that  enables  them to  instruct  a caller on  pre-arrival
emergency medical  procedures,  if necessary.  In our larger control centers,  a
computer  assists the dispatcher by analyzing a number of factors,  such as time
of day,  ambulance  location,  and  historical  traffic  patterns,  in  order to
recommend optimal ambulance  selection.  In all cases, a dispatcher  selects and
dispatches  the  ambulance.  While the  ambulance is en route to the scene,  the
emergency medical team receives  information  concerning the patient's condition
prior to arrival at the scene.  Also, in various  operations across the country,
we use AVL (auto  vehicle  locator)  in the  vehicles  to enhance  our  dispatch
system.

     In the delivery of emergency ambulance services,  our communication systems
allow the ambulance crew to communicate  directly with the destination  hospital
to alert  hospital  medical  personnel  of the  arrival of the  patient  and the
patient's  condition,  and  to  receive  instructions  directly  from  emergency
department personnel on specific  pre-hospital medical treatment.  These systems
also  facilitate  close and direct  coordination  with other  emergency  service
providers,  such as the appropriate police and fire departments that also may be
responding to a call.

     Deployment  and  dispatch  also  represent  important  factors in providing
non-emergency  ambulance  services.  We implement  system status plans for these
services designed to assure appropriate  response times to non-emergency  calls.
We  have   developed   extensive   customer   service  models  that  enable  our
communications  centers to meet these customer needs. We have  established  such
procedures based on patient  condition,  specialized  equipment needed,  and the
level of care that will be required by the patient.

     We  utilize   communication   centers  in  our  community  fire  protection
activities  for the receipt of fire alarms and the  dispatch  of  equipment  and
personnel that are the same as or similar to those  maintained for our ambulance
services. Response time represents an important criteria in the effectiveness of
fire  suppression,  which is dependent on the level of protection  sought by our
customers  in terms  of fire  station  spacing,  the  size of the  service  area
covered, and the amount of equipment and personnel dedicated to fire protection.

BILLINGS AND COLLECTIONS

     We currently  maintain 12 domestic regional billing and payment  processing
centers and a centralized  private pay collection  system at our headquarters in
Arizona.  Invoices  are  generated  at the  regional  level,  and the account is
processed by the centralized  collection system for private-pay accounts only if
payment is not received in a timely  manner.  Customer  service is directed from
each of the  regional  centers.  Substantially  all of our revenue is billed and
collected through our integrated billing and collection  system,  except for our
operations in Rochester, New York and the New Jersey/Metro New York City area.

     We derive a  substantial  portion of our  ambulance  fee  collections  from
reimbursement  by  third-party   payers,   including  payments  under  Medicare,
Medicaid,  and private insurance  programs,  typically  invoicing and collecting
payments directly to and from those third-party payers. We also collect payments
directly from patients,  including  payments under  deductible and  co-insurance
provisions  and  otherwise.  The  composition  of our domestic net ambulance fee
collections is as follows:

                                       14
<PAGE>
                                            2002         2001         2000
                                            ----         ----         ----
     Medicare                                 26%          25%          23%
     Medicaid                                 12%          11%          11%
     Private insurers                         49%          51%          47%
     Patients                                 13%          13%          19%
                                            ----         ----         ----
                                             100%         100%         100%
                                            ====         ====         ====

     Companies in the ambulance service industry maintain significant provisions
for doubtful accounts  compared to companies in other industries.  Collection of
complete and accurate patient billing  information  during an emergency  service
call is sometimes  difficult,  and incomplete  information hinders  post-service
collection  efforts.  In  addition,  it is not  possible  for us to evaluate the
creditworthiness  of  patients  requiring  emergency  transport  services.   Our
allowance  for  doubtful  accounts  generally  is higher with respect to revenue
derived directly from patients than for revenue derived from third-party  payers
and generally is higher for transports  resulting from 911 emergency  calls than
for  non-emergency  ambulance  requests.  See  "Risk  Factors  -- We  depend  on
reimbursements  by third-party  payers and  individuals"  contained in Item 7 of
this Report.

     We have substantial  experience in processing claims to third-party  payers
and employ a billing  staff  specifically  trained in  third-party  coverage and
reimbursement  procedures.  Our integrated  billing and  collection  system uses
proprietary  software  to  specifically  tailor  the  submission  of  claims  to
Medicare,  Medicaid, and certain other third-party payers and has the capability
to  electronically  submit  claims to the  extent  third-party  payers'  systems
permit.  Our  integrated  billing and  collection  system  provides for accurate
tracking of accounts  receivable and status pending payment,  which  facilitates
the  effective   utilization   of  personnel   resources  to  resolve   workload
distribution and problematic  invoices.  When billing individuals,  we sometimes
use an  automated  dialer that  pre-selects  and dials  accounts  based on their
status within the billing and collection  cycle,  which we believe optimizes the
efficiency of the collection staff.

     State   licensing   requirements   as  well  as  contracts  with  counties,
municipalities,  and  health  care  facilities  typically  require us to provide
ambulance  services without regard to a patient's  insurance coverage or ability
to pay. As a result,  we often receive partial or no  compensation  for services
provided  to  patients  who are not covered by  Medicare,  Medicaid,  or private
insurance.  The  anticipated  level  of  uncompensated  care  and  uncollectible
accounts may be considered  in  determining  our subsidy,  if any, and permitted
rates under contracts with a county or municipality.

INSURANCE AND SURETY BONDING

     Many of our  contracts  and certain  provisions  of local law require us to
carry  specified  amounts  of  insurance  coverage.  We  carry a broad  range of
comprehensive  general  liability,  automobile,  property damage,  professional,
workers' compensation, and other liability insurance policies that typically are
renewed  annually.  As a result of the nature of our services and the day-to-day
operation  of our  vehicle  fleet,  we  are  subject  to  accident,  injury  and
professional  claims in the  ordinary  course of  business.  We  operate in some
states that adhere to a gross negligence  standard for the delivery of emergency
medical care, which potentially lessens our exposure for tort judgments.

     Based upon  historical  claim  trends,  we consider our  insurance  program
adequate for the protection of our assets and operations. Our insurance policies
are  subject to certain  deductibles  and  self-insured  retention  limits.  The
coverage limits of our policies may not be sufficient,  we may experience claims
within our  deductibles  or  self-insured  retentions  in amounts  greater  than
anticipated,  or our insurers may experience  financial  difficulties that would
require us to pay unanticipated claims. In addition,  insurance may not continue
to be available on commercially  reasonable  terms. A successful claim or claims
against us in excess of our insurance coverage, or claims within our deductibles
or self insured  retentions in amounts  greater than  anticipated,  could have a
material adverse effect on our business,  financial  condition,  cash flows, and
results of operations.  Claims against us, regardless of their merit or outcome,
also may have an adverse effect on our reputation. We have attempted to minimize
our claims  exposure by  instituting  process  improvements  and  increasing the
utilization of experts in connection with our legal,  risk management and safety
programs.  See "Management's  Discussion And Analysis of Financial Condition and
Results of Operations" for additional information.

                                       15
<PAGE>
     Counties,  municipalities,  and  fire  districts  sometimes  require  us to
provide  a  surety  bond  or  other   assurance  of  financial  and  performance
responsibility.  We may  also  be  required  by law to post a  surety  bond as a
prerequisite to obtaining and maintaining a license to operate.  As a result, we
have a portfolio of surety bonds that is renewed annually.

EMPLOYEES

     At September 20, 2002, we employed  approximately 6,810 full-time and 3,640
part-time  employees,   including  approximately  6,280  involved  in  ambulance
services,  940 in fire protection services, 430 in integrated ambulance and fire
protection  services,  970 in urgent home medical care, and 1,830 in management,
administrative,  clerical and billing activities. Of these employees,  2,420 are
paramedics and 3,230 are EMTs. We are party to collective  bargaining agreements
relating to certain of our paramedics and EMTs in Rochester,  New York; Buffalo,
New York; Corning, New York; Youngstown,  Ohio; San Diego, California;  Gadsden,
Alabama; and Knoxville, Tennessee. We also have collective bargaining agreements
in place for certain of our Maricopa County, Arizona, Integrated Fire employees;
and certain of our  ambulance  services  employees  in Arizona.  We consider our
relations with employees to be good.

STRATEGY

     Our strategy is to continue  strengthening our existing core businesses and
to continue  building  upon our  economies of scale,  while  providing  the most
proficient  levels of health and safety services  possible for the customers and
communities we serve. Over the past year, our efforts to strengthen our business
have been  primarily  focused on (i)  sustaining  and  enhancing  positive  cash
performance,  (ii)  improving  the quality  and  collection  of  revenue,  (iii)
selective  growth  through   expansion  in  existing  service  areas,  and  (iv)
development  of  regional  new-growth  opportunities.  Fiscal  2002  also was an
important  year in the execution of our plan to return to  profitability,  which
included continuing implementation of programs designed to maximize and expedite
reimbursement  for our medical  transport  services.  Our business  strategy for
fiscal year 2003  includes  continued  emphasis  on these  focal  points and our
long-standing  commitment to deliver high-quality,  efficient and cost-effective
services to our existing and prospective  customers in our  established  service
areas.

     CASH PERFORMANCE

     We focused  extensively  throughout  fiscal 2002 on further  enhancing cash
performance.  Initiatives  undertaken  related  specifically  to maximizing  and
accelerating  reimbursement  for our services,  which drives positive  cash-flow
trending.   New  and  ongoing   programs   target   improvements  to  our  field
documentation procedures and pre-screening  non-emergency medical transportation
requests to ensure patients' conditions meet medical necessity standards.

     REVENUE QUALITY AND COLLECTION

     Our objective to improve the quality of our revenue is related  directly to
cash performance and effective collection efforts.  Throughout fiscal year 2002,
we have continued to devote significant effort to negotiating  enhanced rates on
continuing  medical  transportation  contracts.  We have  also  intensified  and
refined our systems in order to maximize collection percentages and minimize the
number of days revenue is  outstanding  from the time we provide  service to the
time we are paid. As a result,  we have  achieved a significant  decline in days
sales' outstanding,  achieving an average of 74 days, compared to 89 days in the
prior fiscal year.

     SAME-SERVICE-AREA GROWTH

     A key  element of our  internal  growth  strategy is to extend our reach in
existing service areas. We believe a variety of  opportunities  are available in
proven  service  areas with good payer mixes to create new growth.  This type of
growth is primarily targeted to non-emergency  medical  transportation  services
among hospitals, health-care centers, nursing homes, rehabilitation centers, and
other related  health-care  entities.  As a result of our efforts in fiscal year
2002, we achieved 7.0% improvement in same-service  area growth over fiscal year
2001  levels.  We are  encouraged  by these  results and will remain  focused on
same-service-area opportunities in fiscal year 2003.

     SELECTIVE NEW GROWTH

     We also have pursued highly  selective new growth  opportunities  in fiscal
year 2002. We evaluate new growth  opportunities  based on a number of criteria,
including  geographic  proximity  to existing  regional  operations,  payer mix,

                                       16
<PAGE>
medical transportation demands, competitive profiles, and demographic trends. We
believe that by targeting specific locations using precise data and analysis, we
can identify and pursue profitable new growth. An example of our achievements in
this regard  during fiscal year 2002 was the award of the  exclusive,  five-year
emergency  medical services contract for Forsyth County,  Georgia,  which is the
state's   fastest-growing  county.  Because  Forsyth  County  is  contiguous  to
Rural/Metro operations in nearby North and South Fulton counties, it represented
a logical and attractive  extension of our regional operations within the state.
We will  continue  to  evaluate  selective  opportunities  for new growth in the
future.

     We will market our emergency  ambulance services through the pursuit of new
contracts  and  alliances  with  municipalities,  other  governmental  entities,
hospital-based emergency providers, and fire districts.  Based on our successful
public/private  alliance  with  the City of San  Diego,  our  ambulance  service
contract   in  Aurora,   Colorado,   and   contracts   with   numerous   Arizona
municipalities,  we  believe  that  contracting  and  partnering  may  provide a
cost-effective  approach to  expansion  into  certain  existing  and new service
areas.  We believe  that our  strategic  public/private  alliances  can  provide
operating economies,  coordination of the delivery of services,  efficiencies in
the use of personnel and equipment, and enhanced levels of service, while saving
taxpayer   dollars.   We  will  continue  to  seek  such   mutually   beneficial
public/private  alliances and municipal  contracts in existing and, to a limited
extent, new service areas.

ITEM 2. PROPERTIES

FACILITIES AND EQUIPMENT

    We  lease  our  principal  executive  offices  in  Scottsdale,  Arizona.  In
addition,   we  lease  administrative   facilities  and  other  facilities  used
principally for ambulance and fire apparatus basing, garaging and maintenance in
those areas in which we provide ambulance and fire protection services.  We also
own 20  facilities  within our  service  areas.  Aggregate  rental  expense  was
approximately  $11.5 million  during fiscal year 2002, and  approximately  $12.1
million  during  fiscal year 2001.  At September  20, 2002,  our fleet  included
approximately   1,490   owned  and  270  leased   ambulances   and   alternative
transportation  vehicles,  115 owned and 27 leased fire vehicles,  and 250 owned
and 26 leased other  vehicles.  We use a combination  of in-house and outsourced
maintenance services to maintain our fleet,  depending on the size of the market
and the availability of quality outside maintenance services.

ITEM 3. LEGAL PROCEEDINGS

    From  time  to  time,   we  are  subject  to   litigation   and   regulatory
investigations  arising in the ordinary course of business.  We believe that the
resolutions  of currently  pending claims or legal  proceedings  will not have a
material  adverse effect on our business,  financial  condition,  cash flows and
results of  operations.  However,  we are unable to predict with  certainty  the
outcome of pending  litigation  and regulatory  investigations.  In some pending
cases,  our  insurance  coverage  may not be adequate  to cover all  liabilities
arising out of such claims. In addition,  due to the nature of our business, CMS
and other  regulatory  agencies  are  expected  to  continue  their  practice of
performing  periodic  reviews  and  initiating  investigations  related  to  the
Company's  compliance  with  billing  regulations.  Unfavorable  resolutions  of
pending or future litigation,  regulatory reviews and/or investigations,  either
individually  or in the aggregate,  could have a material  adverse effect on our
business, financial condition, cash flows and results of operations.

    We, Warren S. Rustand,  our former Chairman of the Board and Chief Executive
Officer,  James H. Bolin,  our former Vice Chairman of the Board,  and Robert E.
Ramsey, Jr., our former Executive Vice President and former Director, were named
as defendants in two purported  class action  lawsuits:  HASKELL V.  RURAL/METRO
CORPORATION,  ET AL., Civil Action No. C-328448 filed on August 25, 1998 in Pima
County, Arizona Superior Court and RUBLE V. RURAL/METRO CORPORATION, ET AL., CIV
98-413-TUC-JMR  filed on September 2, 1998 in United States  District  Court for
the District of Arizona.  The two lawsuits,  which contain  virtually  identical
allegations,  were  brought on behalf of a class of persons  who  purchased  our
publicly traded securities including our common stock between April 28, 1997 and
June 11,  1998.  Haskell v.  Rural/Metro  seeks  unspecified  damages  under the
Arizona Securities Act, the Arizona Consumer Fraud Act, and under Arizona common
law fraud,  and also seeks punitive  damages,  a constructive  trust,  and other
injunctive relief. Ruble v. Rural/Metro seeks unspecified damages under Sections
10(b)  and  20(a) of the  Securities  Exchange  Act of  1934,  as  amended.  The
complaints in both actions  allege that between April 28, 1997 and June 11, 1998
the defendants issued certain false and misleading  statements regarding certain
aspects of our financial status and that these  statements  allegedly caused our
common stock to be traded at artificially  inflated prices.  The complaints also

                                       17
<PAGE>
allege that Mr. Bolin and Mr.  Ramsey sold stock  during this period,  allegedly
taking advantage of inside  information that the stock prices were  artificially
inflated.

     On May 25, 1999,  the Arizona state court granted our request for a stay of
the  Haskell  action  until the Ruble  action is  finally  resolved.  We and the
individual  defendants  moved to dismiss the Ruble action.  On January 25, 2001,
the Court  granted the motion to dismiss,  but granted the  plaintiffs  leave to
replead. On March 31, 2001, the plaintiffs filed a second amended complaint.  We
and the individual defendants moved to dismiss the second amended complaint.  On
March 8, 2002,  the Court  granted the motions to dismiss of Mr.  Ramsey and Mr.
Bolin with leave to replead and denied the motions to dismiss of Mr. Rustand and
us. The result is that Mr.  Ramsey and Mr.  Bolin have been  dismissed  from the
Ruble v. Rural/Metro  case although the Court has permitted  plaintiffs leave to
file another  complaint  against those  individuals.  We and Mr.  Rustand remain
defendants.

     The parties  have  commenced  discovery in the Ruble v.  Rural/Metro  case.
During  discovery,  the parties conduct  investigation  through formal processes
such as  depositions,  subpoenas and requests for production of documents.  This
phase is currently  expected to run through  early  November  2003. In addition,
Plaintiffs have moved to certify the class in the Ruble v.  Rural/Metro  case. A
decision on class certification is not expected before February 2003.

     We and  the  individual  defendants  are  insured  by  primary  and  excess
insurance  policies,  which were in effect at the time the  lawsuits  were filed
(the "D&O  Policies").  Our primary  carrier  has been  funding the costs of the
litigation and attorney's fees over approximately the last four years. Recently,
however,  our primary  carrier  notified  all  defendants  that it is taking the
position that there is no coverage.  The primary  carrier  purports to base this
decision on the actions of one of our former officers,  whom the primary carrier
claims assisted the Plaintiffs in the Ruble v. Rural/Metro case in such a way as
to trigger an exclusion under the policy.  We and the primary carrier are in the
process of negotiating  an interim  funding  agreement  under which the carriers
will continue to advance defense costs in the underlying  litigations  pending a
court  determination  of the  coverage  dispute.  While we intend to  vigorously
pursue  our  rights  under  the D&O  Policies,  we are  unable to  predict  with
certainty the outcome of these matters.  A final and binding adverse judgment on
the  coverage  dispute  could have a material  adverse  effect on our  business,
financial condition, cash flows and results of operations.

     LaSalle Ambulance,  Inc., a New York subsidiary of Rural/Metro Corporation,
has  been  sued in the  case of Ann  Bogucki  and  Patrick  Bogucki  v.  LaSalle
Ambulance  Service,  et al., Index No. I 1995 2128, pending in the Supreme Court
of the State of New York,  Erie  County.  In 1995,  Plaintiff  Ann Bogucki  sued
LaSalle Ambulance along with other defendants, primarily alleging that negligent
medical care caused her injuries. The incident occurred in 1992, which was prior
to our  acquisition  of LaSalle  Ambulance,  Inc.  The prior  owner's  insurance
carrier is  defending  the case.  Based on  information  obtained  in the fourth
quarter of fiscal 2002, we do not believe that our primary  insurance policy for
the  post-acquisition  period provides  coverage for these claims;  however,  we
believe that we have  meritorious  claims  against the prior owner and under the
pre-acquisition  period  insurance  policy.  Further,  we do  not  believe  that
Plaintiffs' claims have any merit and are cooperating with the insurance carrier
to vigorously defend the lawsuit.  However,  if the Plaintiffs are successful in
obtaining an adverse  judgment,  then the limits of the prior owner's  insurance
policy may not be  adequate  to cover all  damages  that might arise out of this
lawsuit.  As the current owner of LaSalle  Ambulance,  Inc.,  we have  potential
liability  for  the  uninsured  portion  of any  such  adverse  judgment;  which
liability,  if occurring,  could have a material adverse effect on our business,
financial condition, cash flows and results of operations.

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

     Not applicable.

                                       18
<PAGE>
                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

     Our  common  stock  trades on the  Nasdaq  SmallCap  Market  pursuant  to a
conditional  listing  under  the  symbol  RURLC.  We  believe  we will  meet the
requirements  associated with our conditional listing upon filing of this Report
on Form 10-K and will shortly  thereafter  resume trading on the Nasdaq SmallCap
Market under the symbol RURL.  See "Risk  Factors -- We may be delisted from the
Nasdaq SmallCap Market."

     The  following  table sets forth the high and low sale prices of the common
stock for the fiscal quarters indicated.

                                                         HIGH       LOW
                                                         ----      -----
     YEAR ENDED JUNE 30, 2001
        First quarter ..............................     $2.31     $1.50
        Second quarter .............................     $3.38     $1.25
        Third quarter ..............................     $2.16     $0.81
        Fourth quarter .............................     $1.09     $0.87

     YEAR ENDED JUNE 30, 2002
        First quarter ..............................     $0.97     $0.57
        Second quarter .............................     $0.74     $0.35
        Third quarter ..............................     $1.13     $0.37
        Fourth quarter .............................     $4.75     $0.80

     On September 20, 2002, the closing sale price of our common stock was $2.50
per share. On September 20, 2002, there were approximately 973 holders of record
of our common stock.

DIVIDEND POLICY

     We have never paid any cash  dividends  on our common  stock.  We currently
plan to retain earnings, if any, for use in our business rather than to pay cash
dividends.  Payments  of any cash  dividends  in the future  will  depend on the
financial  condition,  results of operations and capital  requirements  of us as
well as other  factors  deemed  relevant by our Board of  Directors.  Our senior
notes and amended credit  facility  contain  restrictions  on our ability to pay
cash  dividends,  and future  borrowings may contain similar  restrictions.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  --  Liquidity  and Capital  Resources"  contained  in Item 7 of this
Report.

ITEM 6. SELECTED FINANCIAL DATA

     The following  selected  financial data as of and for the fiscal years 1998
through 2002 has been derived from our audited Consolidated Financial Statements
and should be read in conjunction with "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" and our  Consolidated  Financial
Statements and notes appearing elsewhere in this Report.

     The  Consolidated  Financial  Statements for fiscal years 1998 through 2001
were audited by Arthur Andersen LLP (Andersen) who has ceased operations. A copy
of the report  previously  issued by Andersen on our financial  statements as of
June 30, 2000 and 2001 and for each of the three years in the period  ended June
30, 2001 is included elsewhere in this Report. Such report has not been reissued
by Andersen.

                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                                               YEARS ENDED JUNE 30,
                                                          -------------------------------------------------------------
                                                            2002         2001         2000         1999         1998
                                                          ---------    ---------    ---------    ---------    ---------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA
Net revenue (1) .......................................   $ 497,038    $ 504,316    $ 570,074    $ 561,366    $ 475,558
Operating expenses
  Payroll and employee benefits .......................     287,307      301,055      323,285      297,341      254,806
  Provision for doubtful accounts .....................      69,900      102,470       95,623       81,227       81,178
  Provision for doubtful accounts -- change in
   accounting estimate ................................          --           --       65,000           --           --
  Depreciation ........................................      15,155       21,809       25,009       24,222       19,213
  Amortization of intangibles (2) .....................       1,055        7,352        8,687        9,166        7,780
  Other operating expenses ............................      97,640      142,009      127,743       98,739       80,216
  Asset impairment charges ............................          --       94,353           --           --           --
  Loss on disposition of clinic operations ............          --        9,374           --           --           --
  Contract termination costs and related asset
   impairment .........................................        (107)       9,256           --           --           --
  Restructuring charge and other ......................        (718)       9,091       34,047        2,500        5,000
                                                          ---------    ---------    ---------    ---------    ---------
Operating income (loss) ...............................      26,806     (192,453)    (109,320)      48,171       27,365
Interest expense, net .................................     (24,976)     (30,001)     (25,939)     (21,406)     (14,082)
Other income (expense), net ...........................           9       (2,402)       2,890          (70)         199
                                                          ---------    ---------    ---------    ---------    ---------
Income (loss) before income taxes, extraordinary
 loss and cumulative effect of change in accounting
 principle ............................................       1,839     (224,856)    (132,369)      26,695       13,482
Income tax (provision) benefit ........................       2,050       (1,875)      32,837      (11,231)      (5,977)
                                                          ---------    ---------    ---------    ---------    ---------
Income (loss) before extraordinary loss and
 cumulative effect of change in accounting principle ..       3,889     (226,731)     (99,532)      15,464        7,505
Extraordinary loss on expropriation of Canadian
 ambulance service licenses ...........................          --           --       (1,200)          --           --
Cumulative effect of change in accounting principle (2)     (49,513)          --         (541)          --           --
                                                          ---------    ---------    ---------    ---------    ---------
       Net income (loss) ..............................   $ (45,624)   $(226,731)   $(101,273)   $  15,464    $   7,505
                                                          =========    =========    =========    =========    =========
Basic earnings per share:
Income (loss) before extraordinary loss and cumulative
 effect of change in accounting principle .............   $    0.26    $  (15.38)   $   (6.82)   $    1.07    $    0.55
Extraordinary loss on expropriation of Canadian
 ambulance service licenses ...........................          --           --        (0.08)          --           --
Cumulative effect of change in accounting principle ...       (3.26)          --        (0.04)          --           --
                                                          ---------    ---------    ---------    ---------    ---------
       Net income (loss) ..............................   $   (3.00)   $  (15.38)   $   (6.94)   $    1.07    $    0.55
                                                          =========    =========    =========    =========    =========
Diluted earnings per share:
Income (loss) before extraordinary loss and cumulative
 effect of change in accounting principle .............   $    0.25    $  (15.38)   $   (6.82)   $    1.06    $    0.54
Extraordinary loss on expropriation of Canadian
 ambulance service licenses ...........................          --           --        (0.08)          --           --
Cumulative effect of change in accounting principle ...       (3.14)          --        (0.04)          --           --
                                                          ---------    ---------    ---------    ---------    ---------
       Net income (loss) ..............................   $   (2.89)   $  (15.38)   $   (6.94)   $    1.06    $    0.54
                                                          =========    =========    =========    =========    =========
Weighted average number of shares outstanding:
  Basic ...............................................      15,190       14,744       14,592       14,447       13,529
  Diluted .............................................      15,773       14,744       14,592       14,638       14,002
</TABLE>

                                       20
<PAGE>
<TABLE>
<CAPTION>
                                                                  YEARS ENDED JUNE 30,
                                             -------------------------------------------------------------
                                                2002         2001         2000         1999        1998
                                             ---------    ---------    ---------    ---------    ---------
                                                                     (IN THOUSANDS)
<S>                                          <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA
Working capital (deficit) (3) ............   $  28,038    $(285,566)   $(192,512)   $ 140,929    $ 110,529
Total assets .............................     237,438      298,534      491,217      579,907      535,452
Current portion of long-term debt (3) ....       1,633      294,439      299,104        5,765        8,565
Long-term debt, net of current portion (3)     298,529        1,286        2,850      268,560      243,831
Stockholders' equity (deficit) (1) .......    (165,319)    (130,526)      95,591      196,839      177,773

CASH FLOW DATA
Cash flow provided by (used in) operating
  activities .............................       9,328        7,859      (11,551)      16,247        2,720
Cash flow provided by (used in) financing
  activities .............................      (2,669)      (5,907)      28,258       21,491       68,284
Cash flow provided by (used in) investing
  activities .............................      (5,832)      (3,805)     (13,640)     (36,604)     (67,891)
</TABLE>

----------
(1)  The Company acquired the operations of five companies during the year ended
     June 30, 1999 for an aggregate  purchase  price of $20.6 million as well as
     eleven  companies  during  the year ended  June 30,  1998 for an  aggregate
     purchase  price of $77.1 million  (including  $9.0 million of the Company's
     common  stock).  The  increase  in net  revenue  between  1998  and 1999 is
     primarily a result of these acquisitions.

(2)  Effective  July  1,  2001,  the  Company  adopted  Statement  of  Financial
     Accounting Standards No. 142, Goodwill and Intangible Assets (SFAS 142). In
     connection  with  the  adoption  of  SFAS  142,  the  Company  discontinued
     amortizing its goodwill effective July 1, 2001.  Additionally,  the Company
     recognized an  approximate  $49.5 million  transitional  impairment  charge
     which has been reflected as the  cumulative  effect of change in accounting
     principle in fiscal 2002. Note 5, Goodwill,  in our Consolidated  Financial
     Statements   appearing   elsewhere  in  this  report  contains   additional
     information on our adoption of SFAS 142.

     Additionally,  effective  July 1, 1999,  the Company  changed its method of
     accounting for start-up costs,  including organization costs. In connection
     with  that  change,  the  Company  wrote-off  $0.9  million  of  previously
     capitalized  organization  costs  ($0.5  million  after tax  benefits)  and
     classified  such charge as the  cumulative  effect of change in  accounting
     principle in 2000.

(3)  Our current  liabilities  exceeded our current  assets at June 30, 2001 and
     2000 as a result of the  classification  of amounts  outstanding  under our
     revolving  credit  facility  and our 7 7/8% Senior  Notes due 2008  (Senior
     Notes) as current liabilities.  Such classification  resulted from the fact
     that we were not in compliance  with certain of the covenants  contained in
     our  revolving  credit  agreement  and  because of the  related  provisions
     contained  in  the  agreement   relating  to  our  Senior  Notes.   Amounts
     outstanding  under our revolving  credit facility and our Senior Notes were
     classified  as  long-term  liabilities  as of June 30,  2002 as a result of
     amendments  to our credit  facility  which became  effective  September 30,
     2002. Such amendments waived previous covenant  violations and extended the
     maturity  date of the credit  facility  from March 16, 2003 to December 31,
     2004.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
our  selected  consolidated   financial  data  and  our  Consolidated  Financial
Statements and notes appearing elsewhere in this Report.

     Effective  September 30, 2002, we entered into an amended  credit  facility
with our bank lenders.  Among other provisions,  the amended agreement  provides
for a permanent waiver of past  noncompliance  and an extended  maturity date of
December 31, 2004. See "Liquidity and Capital Resources."

     Due to the deteriorating  economic conditions and continued  devaluation of
the local currency,  we reviewed our strategic  alternatives with respect to the
continuation  of operations in Latin America,  including  Argentina and Bolivia,
and determined  that we would benefit from focusing on our domestic  operations.
Effective  September  27, 2002, we sold our Latin  American  operations to local

                                       21
<PAGE>
management for  assumption of net  liabilities.  Revenues  relating to our Latin
American  operations totaled $25.4 million,  $43.1 million and $57.4 million for
the years ended June 30,  2002,  2001 and 2000,  respectively.  Excluding  asset
impairment  and  restructuring  charges,  operating  expenses  related  to Latin
American  operations totaled $23.8 million,  $44.7 million and $56.2 million for
the years ended June 30, 2002, 2001 and 2000, respectively. Although we have not
determined  the  final  accounting,  we do not  expect  there  to be a  negative
financial impact from this transaction.

INTRODUCTION

     We derive our revenue  primarily  from fees charged for  ambulance and fire
protection  services.  We provide  ambulance  services in response to  emergency
medical calls (911 emergency  ambulance  services) and  non-emergency  transport
services (general transport  services) to patients on both a fee-for-service and
nonrefundable  subscription fee basis. Per transport  revenue depends on various
factors, including the mix of rates between existing markets and new markets and
the mix of activity between 911 emergency  ambulance  services and non-emergency
transport  services  as well  as  other  competitive  factors.  Fire  protection
services are provided either under contracts with municipalities, fire districts
or other  agencies or on a  nonrefundable  subscription  fee basis to individual
homeowners or commercial property owners.

     Medical  transportation and related services revenue includes 911 emergency
and non-emergency ambulance and alternative  transportation service fees as well
as municipal subsidies and subscription fees. Domestic ambulance and alternative
transportation  service fees are recognized as the services are provided and are
recorded net of estimated  Medicare,  Medicaid and other contractual  discounts.
Ambulance  subscription  fees,  which are  generally  received in  advance,  are
deferred and  recognized  on a pro rata basis over the term of the  subscription
agreement, which is generally one year.

     Payments received from third-party  payers represent a substantial  portion
of our ambulance service fee receipts.  We derived  approximately 87% of our net
ambulance and alternative  transportation fee collections during fiscal 2002 and
2001 from such third  party  payers.  We  maintain an  allowance  for  Medicare,
Medicaid and contractual  discounts and doubtful  accounts based on credit risks
applicable to certain types of payers,  historical  collection  trends and other
relevant  information.  This  allowance is examined on a quarterly  basis and is
revised  for  changes  in  circumstances   surrounding  the   collectibility  of
receivables.  Provisions for Medicare,  Medicaid and  contractual  reimbursement
limitations are included in the calculation of medical  transportation  services
revenue.

     Because of the nature of our ambulance services, it is necessary to respond
to a number of calls, primarily 911 emergency ambulance service calls, which may
not result in transports. Results of operations are discussed below on the basis
of actual  transports  because  transports are more directly related to revenue.
Expenses  associated with calls that do not result in transports are included in
operating  expenses.  The percentage of calls not resulting in transports varies
substantially  depending  upon  the  mix  of  non-emergency  ambulance  and  911
emergency  ambulance service calls in individual markets and is generally higher
in  service  areas in which the  calls are  primarily  911  emergency  ambulance
service calls.  Rates in our markets take into account the anticipated number of
calls  that may not  result in  transports.  We do not  separately  account  for
expenses  associated  with  calls  that do not  result  in  transports.  Revenue
generated  under our former  capitated  service  arrangements  in  Argentina  is
included in medical transportation and related services revenue.

     Revenue  generated  under fire protection  service  contracts is recognized
over the  life of the  contract.  Subscription  fees  received  in  advance  are
deferred and recognized over the term of the  subscription  agreement,  which is
generally one year.

     Other revenue primarily consists of revenue generated from dispatch, fleet,
billing,  training  and home health care  services  and is  recognized  when the
services are provided.

     Other operating  expenses consist  primarily of rent and related  occupancy
expenses,  vehicle and equipment  maintenance and repairs,  insurance,  fuel and
supplies, travel and professional fees.

     Our net  income  before  the  cumulative  effect of a change in  accounting
principle  was $3.9  million or $0.25 per diluted  share for the year ended June
30, 2002.  The net loss after the  cumulative  effect of a change in  accounting
principle was $45.6 million or $2.89 per diluted  share.  This compares to a net
loss of  approximately  $226.7  million or $15.38 per diluted share for the year

                                       22
<PAGE>
ended June 30, 2001, and a net loss of $101.3 million or $6.94 per diluted share
for the year ended June 30, 2000. Our operating  results for the year ended June
30, 2001 were adversely  affected by asset impairment  charges,  our operational
restructuring  program  involving the closure of certain service areas, the loss
of two exclusive 911 contracts,  the  disposition of clinic  operations in Latin
America,   changes  in  estimates   that  impacted  our  reserves  for  workers'
compensation  and  general  liability  matters,  and  additional  provision  for
doubtful  accounts related to closed or closing service areas and  non-transport
related receivables.

     CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

     Our  discussion  and  analysis of our  financial  condition  and results of
operations are based upon our financial statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  In connection with the preparation of these financial  statements,  we
are required to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue, and expenses, and related disclosure of contingent
assets  and  liabilities.  On an  ongoing  basis,  we  evaluate  our  estimates,
including those related to revenue recognition, allowance for Medicare, Medicaid
and other  contractual  discounts and doubtful  accounts,  general liability and
workers'  compensation  claim  reserves.  We base our  estimates  on  historical
experience and on various other assumptions that we believe are reasonable under
the  circumstances.  The results form the basis for making  judgments  about the
carrying  values of assets and  liabilities  that are not readily  apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or conditions.

     We have  identified  the  accounting  policies  below  as  critical  to our
business  operations and the  understanding  of our results of  operations.  The
impact of these  policies on our business  operations  is  discussed  throughout
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  where such  policies  affect our  reported  and  expected  financial
results.  The discussion below is not intended to be a comprehensive list of our
accounting  policies.  For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements, which contains accounting policies and other disclosures required by
accounting principles generally accepted in the United States of America.

     MEDICAL  TRANSPORTATION  AND RELATED FEE  REVENUE  RECOGNITION  -- Domestic
ambulance  and  alternative  transportation  service  fees are  recognized  when
services  are  provided  and  are  recorded  net of a  provision  for  Medicare,
Medicaid, and other contractual reimbursement limitations. Because of the length
of the collection cycle with respect to ambulance and alternative transportation
service  fees,  it is necessary  to estimate  the amount of these  reimbursement
limitations   at  the  time   revenue  is   recognized.   Estimates  of  amounts
uncollectible due to the described reimbursement limitations are estimated based
on  historical  collection  data,  historical  write-off  activity  and  current
relationships  with payers,  and are computed  separately for each service area.
The estimated  uncollectibility is translated into a percentage of total revenue
which is applied to calculate  the  provision.  If the  historical  data used to
calculate these estimates does not properly  reflect the  collectibility  of the
current revenue stream,  revenue could be overstated or understated.  Provisions
made for reimbursement  limitations on ambulance and alternative  transportation
service  fees are  included in the  calculation  of medical  transportation  and
related service  revenue and totaled $134.0  million,  $135.4 million and $102.9
million for the years ended June 30, 2002, 2001 and 2000, respectively.

     PROVISION FOR DOUBTFUL ACCOUNTS FOR MEDICAL TRANSPORTATION AND RELATED FEES
-- Ambulance and alternative  transportation  service fees are billed to various
payer  sources.  As discussed  above,  provisions  for  uncollectibility  due to
Medicare,  Medicaid and  contractual  reimbursement  limitations are recorded as
provisions  against revenue.  We estimate  additional  provisions related to the
potential   uncollectibility  of  other  payers.  The  estimates  are  based  on
historical  collection data and historical  write-off  activity and are computed
separately for each service area. The provision for doubtful accounts percentage
that is applied to ambulance and alternative  transportation service fee revenue
is calculated as the difference between the total expected collection percentage
less  provision  percentages  applied for  Medicare,  Medicaid  and  contractual
reimbursement limitations.  If historical data used to calculate these estimates
does not properly reflect the  collectibility of the current net revenue stream,
the  provision  for doubtful  accounts may be  overstated  or  understated.  The
provision  for doubtful  accounts on ambulance  and  alternative  transportation
service revenue totaled $69.7 million, $101.0 million and $158.0 million for the
fiscal years ended June 30, 2002, 2001 and 2000, respectively.

     WORKERS'  COMPENSATION  RESERVES -- Beginning  May 1, 2002,  we purchased a
corporate-wide  "first-dollar"  workers'  compensation  insurance policy,  under
which we have no obligation to pay any  deductible  amounts on claims  occurring
during the policy period.  This policy covers all workers'  compensation  claims
made  by  employees  of  the  Company  and  all of  its  domestic  subsidiaries.

                                       23
<PAGE>
Accordingly,  provisions for workers' compensation expense for claims arising on
and after May 1, 2002 are  reflective  of premium  costs  only.  Prior to May 1,
2002, our workers'  compensation  policies  included a deductible  obligation of
$250,000 per claim,  which was  increased in recent years to $500,000 per claim,
with no  aggregate  limit.  Claims  relating to these prior  policy years remain
outstanding. Claim provisions were estimated based on historical claims data and
the ultimate  projected value of those claims. For claims occurring prior to May
1, 2002, our third-party administrator establishes initial estimates at the time
a claim is reported and  periodically  reviews the  development  of the claim to
confirm that the  estimates  are  adequate.  In fiscal year 2002,  we engaged an
outside  insurance  expert  to  review  the  estimates  set by  our  third-party
administrator  on certain  claims and to  participate  in our periodic  internal
claim  reviews.  We also  periodically  engage  actuaries  to  assist  us in the
determination  of our workers'  compensation  claims  reserves.  If the ultimate
development of these claims is significantly different than those that have been
estimated,  the reserves for workers' compensation claims could be overstated or
understated.  Reserves  related to workers'  compensation  claims  totaled $15.9
million and $14.9 million at June 30, 2002 and 2001, respectively.

     GENERAL LIABILITY  RESERVES -- We are subject to litigation  arising in the
ordinary course of our business.  In order to minimize the risk of our exposure,
we maintain  certain  levels of coverage for  comprehensive  general  liability,
automobile  liability,  professional  liability.  Internally and throughout this
report,  we refer to these  three  types of  policies  collectively  as "general
liability"  policies.  These policies currently are, and historically have been,
underwritten  on a deductible  basis.  Provisions are made to record the cost of
premiums as well as that  portion of the claims that is our  responsibility.  In
general, our deductible  obligation for policies issued in fiscal years prior to
2001 ranges  from  $100,000 to  $250,000  per claim (with no  aggregate  limit),
depending on the policy year and line of coverage. Beginning in fiscal 2001, our
deductible amount increased to $1,000,000 per claim;  however, we also purchased
a liability  ceiling for each of those policy years,  which permanently caps our
maximum deductible obligation. Our third-party administrator establishes initial
estimates  at the  time  a  claim  is  reported  and  periodically  reviews  the
development  of the claim to confirm that the estimates are adequate.  In fiscal
year 2002, we engaged an outside insurance expert to review the estimates set by
our  third-party  administrator  on  certain  claims and to  participate  in our
periodic internal reviews. We also periodically engage actuaries to assist us in
the  determination  of our general  liability  claim  reserves.  If the ultimate
development of these claims is significantly different than those that have been
estimated,  the reserves for general  liability  claims could be  overstated  or
understated.  Reserves related to general liability claims totaled $15.4 million
and $19.7 million at June 30, 2002 and 2001, respectively.

                                       24
<PAGE>
RESULTS OF OPERATIONS

     The  following  table  sets  forth  certain  items  from  our  Consolidated
Financial  Statements  expressed  as a  percentage  of net revenue for the years
ended June 30, 2002, 2001, and 2000:

<TABLE>
<CAPTION>
                                                                      YEARS ENDED JUNE 30,
                                                                  ----------------------------
                                                                   2002       2001       2000
                                                                  ------     ------     ------
<S>                                                                <C>        <C>        <C>
     Net revenue ..............................................    100.0%     100.0%     100.0%

     Operating expenses
       Payroll and employee benefits ..........................     57.8       59.7       56.7
       Provision for doubtful accounts ........................     14.1       20.3       16.8
       Provision for doubtful accounts -- change in accounting
         estimate .............................................       --         --       11.4
       Depreciation ...........................................      3.0        4.3        4.4
       Amortization of intangibles ............................      0.2        1.5        1.5
       Other operating expenses ...............................     19.6       28.2       22.4
       Asset impairment charges ...............................       --       18.7         --
       Loss on disposition of clinic operations ...............       --        1.9         --
       Contract termination costs and related asset impairment        --        1.8         --
       Restructuring charge and other .........................     (0.1)       1.8        6.0
                                                                  ------     ------     ------

     Operating income (loss) ..................................      5.4      (38.2)     (19.2)
       Interest expense, net ..................................     (5.0)      (5.9)      (4.6)
       Other income (expense), net ............................       --       (0.5)       0.5
                                                                  ------     ------     ------

     Income (loss) before income taxes, extraordinary loss and
     cumulative effect of change in accounting principle ......      0.4      (44.6)     (23.3)
       Income tax (provision) benefit .........................      0.4       (0.4)       5.8
                                                                  ------     ------     ------

     Net income (loss) before extraordinary loss and cumulative
       effect of change in accounting principle ...............      0.8      (45.0)     (17.5)
     Extraordinary loss .......................................       --         --       (0.2)
     Cumulative effect of a change in accounting principle ....    (10.0)        --       (0.1)
                                                                  ------     ------     ------

          Net income (loss) ...................................     (9.2)%    (45.0)%    (17.8)%
                                                                  ======     ======     ======
</TABLE>

YEAR ENDED JUNE 30, 2002 COMPARED TO YEAR ENDED JUNE 30, 2001

     NET REVENUE

     Net revenue  decreased  approximately  $7.3 million,  or 1.4%,  from $504.3
million  for the year ended June 30,  2001 to $497.0  million for the year ended
June 30, 2002.

     MEDICAL  TRANSPORTATION AND RELATED SERVICES -- Medical  transportation and
related service revenue decreased $4.8 million, or 1.1%, from $425.6 million for
the year ended June 30, 2001 to approximately  $420.8 million for the year ended
June 30, 2002.

     The  decrease  in medical  transportation  and related  service  revenue is
related to a $14.4 million decrease in revenue in our Latin American  operations
primarily  resulting  from  decreases in  memberships  under  capitated  service
arrangements  and  the  devaluation  of the  Argentine  peso.  The  decrease  in
memberships was  attributable to the impact of economic  conditions in Argentina
combined  with  significant  increases  in local  service  taxes on all  medical
services.

     Domestic  medical  transportation  and related  service  revenue  increased
approximately $9.6 million,  or 2.5% from $387.8 million for the year ended June
30, 2001 to $397.4  million for the year ended June 30, 2002.  This  increase is
comprised of a $25.2 million increase in same service area revenue  attributable
to rate increases, call screening and other factors.  Additionally,  there was a
$2.6 million increase in revenue related to a 911 contract that began during the

                                       25
<PAGE>
second quarter of fiscal 2001 offset by an $8.5 million  decrease related to the
loss of 911  contracts  in  Arlington,  Texas and  Lincoln,  Nebraska and a $9.6
million  decrease  related to the  closure of service  areas in fiscal  2000 and
fiscal 2001.

     Total domestic transports, including alternative transportation,  decreased
71,000, or 5.6%, from approximately 1,256,000 (approximately 1,100,000 ambulance
and approximately  156,000  alternative  transportation) for the year ended June
30, 2001 to  approximately  1,185,000  (approximately  1,046,000  ambulance  and
approximately  139,000  alternative  transportation) for the year ended June 30,
2002.  The loss of 911  contracts  in  Arlington,  Texas and  Lincoln,  Nebraska
accounted  for a decrease of  approximately  19,000  transports.  The closure of
service areas in fiscal 2000 and 2001 accounted for a decrease of  approximately
32,000  transports.  Transports  in areas  that we served in both the year ended
June 30, 2002 and 2001  decreased  by  approximately  23,000  transports.  These
decreases were offset by an increase of approximately  3,000 transports  related
to a 911 contract that began during the second quarter of fiscal 2001.

     FIRE PROTECTION  SERVICES -- Fire protection  services revenue increased by
approximately $3.3 million,  or 5.4%, from  approximately  $61.6 million for the
year ended June 30, 2001 to approximately  $64.9 million for the year ended June
30, 2002. Fire protection  services revenue increased  primarily due to rate and
utilization  increases  in our  subscription  fire  programs  of  $2.1  million,
increased  contracting  activity  by our  specialty  fire  protection  group  of
$766,000  and  a  $620,000  increase  in  wildland  fire  services  revenue.  We
experienced  a  particularly  active  wildfire  season in the latter part of the
fiscal year ended June 30, 2002.  Increased  activity in wildland  fire services
revenue has continued into the first quarter of fiscal 2003.

     OTHER REVENUE -- Other revenue  decreased by $5.9 million,  or 34.3%,  from
$17.2  million  for the year ended June 30,  2001 to $11.3  million for the year
ended June 30, 2002. Other revenue  decreases are primarily due to a decrease in
clinic revenue in our Latin  American  operations of $3.6 million as a result of
the disposition in the fourth quarter of fiscal 2001.

     OPERATING EXPENSES

     PAYROLL AND  EMPLOYEE  BENEFITS -- Payroll and  employee  benefit  expenses
decreased  approximately  $13.8  million,  or 4.6%,  from  approximately  $301.1
million for the year ended June 30, 2001 to approximately $287.3 million for the
year ended June 30, 2002.  This  decrease is primarily  attributable  to the net
impact of payroll and benefit increases resulting from contract  renegotiations,
service  area  expansions  and wage rate  increases  ($19.5  million)  offset by
reductions  attributable to the Argentine peso devaluation ($10.9 million),  the
impact of prior year service area closures  ($8.3  million),  and the absence in
2002 of prior year  increases in health  insurance  reserves  ($5.0 million) and
accrued  paid-time-off ($3.0 million). We expect that labor costs related to our
ongoing  operations  will  continue to increase.  Payroll and employee  benefits
decreased  from 59.7% of total revenue for the year ended June 30, 2001 to 57.8%
of net revenue for the year ended June 30,  2002.  See Risk  Factors -- "We have
experienced  material increases in the cost of our insurance and surety programs
and in related collateralization  requirements;" "Claims against us could exceed
our insurance coverage;" and "Our reserves may prove inadequate."

     PROVISION  FOR DOUBTFUL  ACCOUNTS -- The  provision  for doubtful  accounts
decreased  $32.6  million,  or 31.8%,  from  $102.5  million,  or 20.3% of total
revenue,  for the year ended June 30, 2001 to $69.9  million,  or 14.1% of total
revenue, for the year ended June 30, 2002. The provision for the year ended June
30,  2001  included  an   additional   $16.4   million   provision   related  to
underperformance  in  collections in service areas closed during fiscal 2001 and
2000, a $4.8 million provision  related to management's  decision to reserve all
outstanding  non-transport  receivables  in excess of 90 days and a $5.0 million
provision  related  to  contractual   transport  receivables  that  were  deemed
uncollectible.

     The provision for doubtful  accounts on domestic  ambulance and alternative
transportation service revenue (excluding the additional provisions described in
the  preceding  paragraph)  was 18.2% for the year ended June 30, 2002 and 19.9%
for the year ended June 30, 2001.  The decrease is  reflective of the closure of
underperforming  operations  and increases in collection  rates in the remaining
service  areas.  During  fiscal 2002,  we  continued  to focus on improving  the
quality of our revenue by reducing  the amount of  non-emergency  ambulance  and
alternative  transportation  transports in selected  service areas as well as on
previously  implemented  initiatives  to maximize the collection of our accounts
receivable.

     A  summary  of  activity  in  our  allowance  for  Medicare,  Medicaid  and
contractual  discounts and doubtful  accounts during the fiscal years ended June
30, 2002 and 2001 is as follows.

                                       26
<PAGE>
                                                  JUNE 30,
                                          ------------------------
                                            2002           2001
                                          ---------      ---------
                                               (IN THOUSANDS)

     Balance at beginning of year         $  65,229      $  87,752
     Provision for Medicare, Medicaid
       and contractual discounts            134,039        135,435
     Provision for doubtful accounts         69,900        102,470
     Write-offs and other adjustments      (236,500)      (260,428)
                                          ---------      ---------
     Balance at end of year               $  32,668      $  65,229
                                          =========      =========

     DEPRECIATION  --  Depreciation  decreased  approximately  $6.6 million,  or
30.3%,  from  approximately  $21.8  million  for the year ended June 30, 2001 to
approximately  $15.2 million for the year ended June 30, 2002,  primarily due to
asset  write-offs  during the fourth  quarter of fiscal  2001,  the  disposal of
certain  assets  related  to  closed   operations  and  a  decrease  in  capital
expenditures.  Depreciation decreased from approximately 4.3% of net revenue for
the year ended June 30, 2001 to approximately 3.0% of total revenue for the year
ended June 30, 2002

     AMORTIZATION -- We discontinued  amortizing goodwill in accordance with our
adoption of SFAS No. 142,  effective July 1, 2001. As a result,  amortization of
intangibles  has decreased  $6.3 million to $1.1 million for the year ended June
30, 2002.  Approximately,  $1.0 million of the amortization recorded in the year
ended June 30,  2002  relates to an  adjustment  in the  estimated  lives of for
certain other  intangible  assets  acquired in previous  business  combinations.
Amortization  is  expected  to  decline as these  assets  reach the end of their
estimated  lives.  See related  discussion of the effect of the adoption of SFAS
No. 142 below.

     OTHER OPERATING  EXPENSES -- Other operating  expenses consist primarily of
rent and related  occupancy  expenses,  vehicle and  equipment  maintenance  and
repairs,  insurance,  fuel and supplies,  travel,  and professional  fees. Other
operating expenses decreased  approximately $44.4 million, or 31.3%, from $142.0
million  for the year ended June 30,  2001 to $97.6  million  for the year ended
June 30, 2002.  Approximately  $22.3 million of the decrease  relates to charges
taken in the fourth quarter of fiscal 2001,  including $8.4 million of inventory
adjustments  as  described  below,  $1.3  million  related to a  Medicare  audit
settlement,  $1.0  million  related to the  write-off of amounts owed to us by a
former owner,  $8.5 million related to asset write-offs and reserve  adjustments
as a result of account reconciliations of our various Argentine subsidiaries and
$3.1 million for several  adjustments to certain estimates for prepaid expenses,
accrued liabilities and other items,  related to our domestic  operations,  that
were resolved in the fourth quarter of fiscal 2001. Additionally, the year ended
June 30, 2001 included a charge of $15.0 million recorded for additional general
liability  reserves related to increases in reserves for reported claims as well
as to  establish  reserves  for claims  incurred  but not  reported as described
below.  Decreases in other operating  expenses in our Latin American  operations
totaled $8.0 million,  primarily due to the  devaluation of the Argentine  peso.
Closure of service areas in fiscal 2000 and 2001, as well as the loss of the 911
contracts in Arlington, Texas and Lincoln, Nebraska, account for $3.1 million of
the decrease. Other operating expenses decreased from 28.2% of total revenue for
the year ended June 30,  2001 to 19.6% of total  revenue for the year ended June
30, 2002.

     Effective  January 1, 2001,  we refined  our  methodology  for  determining
reserves  related to general  liability  claims.  The changing  environment with
respect to the rising cost of claims as well as the cost of litigation  prompted
a  comprehensive  review by  management  of detailed  information  from external
advisors, historical settlement information and analysis of open claims. The new
method more closely  approximates  the  potential  outcome of each open claim as
well as legal costs related to the administration of these claims. Additionally,
reserves  were set up to cover  potential  unknown  claims  based on  historical
occurrences  of claims  filed  subsequent  to the end of the  policy  year.  For
financial reporting purposes,  this change was treated as a change in accounting
estimate.  See Risk Factors -- "We have  experienced  material  increases in the
cost of our  insurance  and surety  programs  and in  related  collateralization
requirements;" "Claims against us could exceed our insurance coverage;" and "Our
reserves may prove inadequate."

     RESTRUCTURING  AND OTHER CHARGES -- During the fourth quarter of the fiscal
year ended June 30, 2001, we decided to close or downsize nine service areas and
in connection therewith,  recorded restructuring and other charges totaling $9.1
million.  For further discussion of these charges, see comparison of results for
the fiscal year ended June 30, 2001 and June 30, 2000, below.

                                       27
<PAGE>
     A summary of activity in the  restructuring  reserve,  which is included in
accrued liabilities in the consolidated balance sheets, is as follows:

<TABLE>
<CAPTION>
                                                       LEASE       WRITE-OFF       OTHER
                                       SEVERANCE   TERMINATION   OF INTANGIBLE      EXIT
                                         COSTS         COSTS        ASSETS         COSTS        TOTAL
                                       --------      --------      --------      --------      --------
<S>                                    <C>           <C>           <C>           <C>           <C>
     Balance at June 30, 2000          $  3,529      $  3,247      $     --      $  1,356      $  8,132
       Fiscal 2001 charge recorded        1,475         2,371         4,092         1,153         9,091
       Fiscal 2001 usage                 (4,531)       (1,071)       (4,092)       (1,360)      (11,054)
       Adjustments                        1,361        (1,313)           --           (48)           --
                                       --------      --------      --------      --------      --------
     Balance at June 30, 2001             1,834         3,234            --         1,101         6,169
       Fiscal 2002 usage                 (1,025)       (1,172)           --          (951)       (3,148)
       Adjustments                          (52)         (548)           --          (118)         (718)
                                       --------      --------      --------      --------      --------
     Balance at June 30, 2002          $    757      $  1,514      $     --      $     32      $  2,303
                                       ========      ========      ========      ========      ========
</TABLE>

     OTHER FISCAL 2001 CHARGES -- Results of operations  for the year ended June
30,  2001  include  charges  not  applicable  to the year ended  June 30,  2002,
including  asset  impairment  charges,  disposition  of  clinic  operations  and
contract  termination  costs and related  asset  impairment.  See  comparison of
results for the fiscal year ended June 30, 2001 and June 30, 2000, below.

     INTEREST  EXPENSE --  Interest  expense  decreased  by  approximately  $5.0
million,  or 16.7%, from approximately $30.0 million for the year ended June 30,
2001 to  approximately  $25.0  million  for the year ended June 30,  2002.  This
decrease was primarily caused by lower rates on the revolving credit facility as
well as lower average debt  balances.  Additionally,  approximately  $541,000 of
interest  income  received in  conjunction  with an income tax refund was netted
against interest  expense for the year ended June 30, 2002.  Interest expense is
expected  to  increase  in the next  fiscal year due to new rates to be incurred
under the amended credit facility.  See further discussion on the amended credit
facility in "Liquidity and Capital Resources."

     OTHER  INCOME  (EXPENSE),  NET  --  Other  income  (expense),  net  expense
decreased  $2.4 million from the year ended June 30, 2001 to the year ended June
30, 2002.  Other expense in fiscal 2001 included a $4.0 million charge  relating
to the purchase of the minority  interest of a joint  venture  partner in one of
our ambulance operations. Other income of $9,000 recorded in the year ended June
30,  2002 is related  to the final  settlement  of amounts  due under that joint
venture agreement. A description of the joint venture transaction is included in
Note 6 to the Consolidated Financial Statements.

     INCOME TAXES -- We recognized an income tax benefit of $2.1 million in 2002
compared  with an income tax  provision of $1.9 million in 2001.  The income tax
benefit  in 2002  resulted  from  federal  income tax  refunds  of $0.6  million
resulting  from  recently  enacted  legislation  that  allowed us to carryback a
portion of our net  operating  losses to prior  years as well as refunds of $1.6
million  applicable  to prior years for which  recognition  was  deferred  until
receipt. We did not recognize the future income tax benefits attributable to our
2002 net loss as it is more likely than not that the related  benefits  will not
be realized.

     CUMULATIVE  EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE -- We adopted the new
rules on accounting for goodwill and other  intangible  assets effective July 1,
2001.  Under the  transitional  provisions of Statement of Financial  Accounting
Standards (SFAS) No. 142," Goodwill and Other  Intangible  Assets," we performed
impairment tests on the net goodwill and other intangible assets associated with
each of our  reporting  units  with  the  assistance  of  independent  valuation
experts,  using  a  valuation  date  of  July 1,  2001,  and  determined  that a
transitional  goodwill  impairment  charge  of $49.5  million,  net of $0 income
taxes,  was  required.   This  impairment   primarily  relates  to  our  medical
transportation  and related services segment.  The impairment charge is non-cash
and  non-operational in nature and is reflected as a cumulative effect of change
in  accounting   principle  in  the  accompanying   consolidated   statement  of
operations,  retroactively  applied to the quarter ended  September 30, 2001, in
accordance  with the provisions of SFAS No. 142. See Note 5 of the  Consolidated
Financial  Statements  for further  discussion  of the effect of the adoption of
this accounting principle.

                                       28
<PAGE>
YEAR ENDED JUNE 30, 2001 COMPARED TO YEAR ENDED JUNE 30, 2000

     NET REVENUE

     Net revenue decreased $65.8 million,  or 11.5%, from $570.1 million for the
year ended June 30, 2000 to $504.3 million for the year ended June 30, 2001.

     MEDICAL  TRANSPORTATION AND RELATED SERVICES -- Medical  transportation and
related service revenue decreased  approximately  $66.6 million,  or 13.5%, from
approximately  $492.2 million for the year ended June 30, 2000 to  approximately
$425.6 million for the year ended June 30, 2001.

     The  decrease  in medical  transportation  and related  service  revenue is
related to a $6.6 million  decrease in revenue in our Latin American  operations
related to decreases in memberships under capitated service  arrangements due to
the impact of the  economic  recession  in  Argentina  as well as a $4.5 million
decrease in revenue generated from our former Canadian operations. Additionally,
there were significant decreases in domestic medical  transportation and related
service revenue as described below.

     Domestic medical transportation and related service revenue decreased $55.2
million,  or 12.5%,  from  $443.0  million  for the year ended June 30,  2000 to
$387.8 million for the year ended June 30, 2001. This decrease is comprised of a
$42.0  million  decrease  related to the closure of service areas in fiscal 2000
and 2001 and a $2.4  million  decrease  related  to the  loss of a  contract  in
Lincoln, Nebraska.  Additionally,  there was a decrease of $16.8 million related
to  domestic  medical  transportation  and related  service  revenue in areas we
served in both the year  ended  June 30,  2001 and 2000.  These  decreases  were
offset by increases of $6.1 million  related to a 911 contract that began in the
second  quarter of fiscal 2000 and an additional  911 contract that began in the
second quarter of fiscal 2001.

     Total domestic transports, including alternative transportation,  decreased
275,000,  or  21.9%,  from  approximately  1,531,000   (approximately  1,266,000
ambulance and approximately  265,000  alternative  transportation)  for the year
ended  June  30,  2000  to  1,256,000  (approximately  1,100,000  ambulance  and
approximately  156,000  alternative  transportation) for the year ended June 30,
2001.  The closure of service areas  accounted  for a decrease of  approximately
197,000 transports.  The loss of the 911 contract in Lincoln, Nebraska accounted
for a decrease of approximately  6,000  transports.  Transports in areas that we
served in both the year ended June 30, 2002 and 2001 decreased by  approximately
83,000  transports.   The  new  911  contracts  described  above  accounted  for
approximately 10,000 additional transports.

     FIRE PROTECTION  SERVICES -- Fire protection  services revenue increased by
approximately $4.1 million,  or 7.1%, from  approximately  $57.5 million for the
year ended June 30, 2000 to approximately  $61.6 million for the year ended June
30, 2001. Fire protection  services  revenue  increased $1.8 million due to rate
and utilization increases for fire protection services, $1.1 million due to rate
increases  under  existing fire  protection  contracts,  $0.6 million due to new
airport and  industrial  contracting  activity  and $0.6 million due to forestry
revenue increases.

     OTHER REVENUE -- Other revenue decreased by approximately $3.1 million,  or
15.3%,  from  approximately  $20.3  million  for the year ended June 30, 2000 to
approximately  $17.2  million  for the year ended June 30,  2001.  Decreases  in
medical clinic revenue generated in Argentina totaled $2.9 million.

     OPERATING EXPENSES

     PAYROLL AND  EMPLOYEE  BENEFITS -- Payroll and  employee  benefit  expenses
decreased  $22.2 million,  or 6.9%,  from $323.3 million for the year ended June
30,  2000  to  $301.1  million  for  the  year  ended  June  30,  2001.  Certain
underperforming  service areas that were closed in the third and fourth quarters
of fiscal 2000 accounted for $20.9 million of the decrease,  and $4.1 million of
the decrease is related to the closure of our Canadian  operations.  Payroll and
employee  benefit expenses for the fiscal year ended June 30, 2001 includes $5.0
million  of  additional  workers'  compensation  insurance  expense  related  to
increased claims  experience,  $3.0 million required to bring the  paid-time-off
accrual for field personnel into line with the amount required under the related
policies  and  $5.4  million  related  to an  increase  in our  employee  health
insurance reserves as calculated by our third-party administrator. The remaining
decrease  reflects  reductions  in payroll  and  employee  benefit  expenses  in
existing service areas due to decreased  transports as discussed above.  Payroll
and employee benefit  expenses  increased from 56.7% of total revenue during the
year ended June 30,  2000 to 59.7% of total  revenue  during the year ended June
30,  2001.  Increased  service  utilization  in our  Argentine  operations  also

                                       29
<PAGE>
contributed  to the  increase  in payroll  and  employee  benefit  expenses as a
percentage of total revenue.

     PROVISION FOR DOUBTFUL  ACCOUNTS -- The  provision  for doubtful  accounts,
excluding  the $65.0  million  change in  accounting  estimate  in fiscal  2000,
increased  $6.9  million or 7.2% from $95.6  million for the year ended June 30,
2000 to $102.5 million for the year ended June 30, 2001.

     During the year ended June 30, 2001, we recorded a $10.0 million  provision
related to underperformance in collections in service areas closed during fiscal
2000.  In addition,  we recorded a $6.4 million  provision  related to estimated
underperformance  in  collections  for service areas included in the fiscal 2001
restructuring.  It has been our  experience  that once a  service  area has been
exited,  it becomes more  difficult  to collect  outstanding  receivables.  As a
result,  management determined that any non-transport receivable in excess of 90
days outstanding will be fully reserved. This adjustment totaled $4.8 million at
June 30, 2001.  An  additional  $5.0  million  provision  was also  recorded for
contractual  transport  receivables that were deemed  uncollectible.  During the
year ended June 30, 2000, we  experienced a decrease in  collections  in service
areas that were closed or downsized due to our lack of physical  presence in the
service  area.  In fiscal  2000,  we recorded  charges of $3.0  million and $6.8
million recorded in the respective  third and fourth quarters for  uncollectible
accounts in those service areas that were  identified  for closure or downsizing
during those periods.

     The provision for doubtful  accounts on domestic  ambulance and alternative
transportation  service revenue  (excluding the $26.2 million recorded in fiscal
2001 and the $9.8  million in fiscal  2000,  described  above) was 19.2% for the
year  ended  June 30,  2000 and  19.9% for the year  ended  June 30,  2001.  The
increase in the provisioning rate for doubtful accounts is reflective of the new
methodology  being used to calculate  the  provision  for  doubtful  accounts as
described in the following paragraph regarding the change in estimate.

     Based on the  increasingly  unpredictable  nature  of  healthcare  accounts
receivable and the increasing costs to collect those  receivables,  we concluded
that the implemented  billing process changes had not brought about the benefits
anticipated.  As a result, we changed our method of estimating our allowance for
doubtful accounts effective October 1, 1999. Under our new method of estimation,
we  have  chosen  to  fully  reserve  our  accounts  receivable  earlier  in the
collection  cycle than had  previously  been our practice.  We provide  specific
allowances based upon the age of the accounts receivable within each payer class
and also provide for general  allowances  based upon historic  collection  rates
within each payer class. Payer classes include Medicare,  Medicaid,  and private
pay.  Accordingly,  the effect of this change was an  additional  $65.0  million
provision for doubtful  accounts in fiscal 2000,  which is stated  separately in
the accompanying financial statements.

     A  summary  of  activity  in  our  allowance  for  Medicare,  Medicaid  and
contractual  discounts and doubtful  accounts during the fiscal years ended June
30, 2001 and 2000 is as follows:

                                                  JUNE 30,
                                          ------------------------
                                            2001           2000
                                          ---------      ---------
                                               (IN THOUSANDS)
     Balance at beginning of year         $  87,752      $  43,392
     Provision for Medicare, Medicaid
       and contractual discounts            135,435        102,880
     Provision charged to expense           102,470        160,623
     Write-offs and other adjustments      (260,428)      (219,143)
                                          ---------      ---------
                                          $  65,229      $  87,752
                                          =========      =========

     DEPRECIATION -- Depreciation  decreased $3.2 million,  or 12.8%, from $25.0
million  for the year ended June 30,  2000 to $21.8  million  for the year ended
June 30, 2001, primarily due to the disposal of certain assets related to closed
operations  as well as a decrease  in capital  expenditures  during the  current
year.  Depreciation decreased from 4.4% of total revenue for the year ended June
30, 2000 to approximately 4.3% of net revenue for the year ended June 30, 2001.

     AMORTIZATION -- Amortization of intangibles  decreased by $1.3 million,  or
14.9%,  from $8.7  million for the year ended June 30, 2000 to $7.4  million for
the year ended June 30, 2001.  This  decrease was the result of the write-off of
$22.3  million of goodwill in  conjunction  with the  closure or  downsizing  of
certain service areas during fiscal 2000.  Amortization  was 1.5% of net revenue
for both the year ended June 30, 2000 and 2001.

                                       30
<PAGE>
     OTHER  OPERATING  EXPENSES  -- Other  operating  expenses  increased  $14.3
million,  or 11.2%,  from  $127.7  million  for the year ended June 30,  2000 to
$142.0  million for the year ended June 30, 2001.  The increase is primarily due
to additional general liability insurance reserves of $15.0 million as explained
more fully in the following paragraph,  $8.5 million related to asset write-offs
and reserve  adjustments as a result of account  reconciliations  of our various
Argentine  subsidiaries performed in the fourth quarter of fiscal 2001, the $8.4
million of inventory adjustments as discussed below, the accrual of $1.3 million
related to a Medicare audit settlement and $1.0 million related to the write-off
of amounts owed to us by a former owner.  These amounts are offset by a decrease
of $6.4 million  relating to closed service areas, as well as decreases in other
operating  expenses in existing  service areas related to decreased  transports.
Other operating  expenses increased from 22.4% of net revenue for the year ended
June 30, 2000 to 28.2% of total revenue for the year ended June 30, 2001.

     Effective  January  1, 2001,  we refined  our  methodology  of  determining
reserves  related to general  liability  claims.  The changing  environment with
respect to the rising cost of claims as well as the cost of litigation  prompted
a  comprehensive  review by  management  of detailed  information  from external
advisors, historical settlement information and analysis of open claims. The new
method more closely  approximates  the  potential  outcome of each open claim as
well  as  the  legal  costs  related  to the  administration  of  these  claims.
Additionally,  reserves were set up to cover  potential  unknown claims based on
historical occurrences of claims filed subsequent to the end of the policy year.
For  financial  reporting  purposes,  this  change  was  treated  as a change in
accounting estimate.

     We have  experienced a substantial  rise in the costs  associated with both
our  insurance  and surety  bonding  programs in  comparison  to prior years.  A
significant  factor  is the  overall  hardening  of the  insurance,  surety  and
re-insurance  markets,  which has  resulted  in  demands  for  larger  premiums,
collateralization of payment obligations and increasingly  rigorous underwriting
requirements.  Our higher  costs also  result  from our claims  history and from
vendors'  perception of our financial position due to our current debt structure
and cash position.  Sustained and substantial  annual  increases in premiums and
requirements  for  collateral or pre-funded  deductible  obligations  may have a
material  adverse  effect on our business,  financial  condition,  cash flow and
results of operations.  We have been able to self-fund  these premium  increases
out of  operating  cash flow and have  adjusted  our  budgetary  assumptions  to
address anticipated future increases.

     Medical,  fleet,  and fire supplies are maintained in a central  warehouse,
numerous regional  warehouses,  and multiple stations,  lockers, and vehicles. A
physical  inventory of all  locations at June 30, 2001  revealed a shortage from
recorded  levels.  Shrinkage,  obsolescence,  and supplies  lost due to closures
account for most of the shortage. To reduce the recorded inventory to the actual
physical  count, an adjustment of  approximately  $8.4 million was recorded as a
component of other operating expenses in the accompanying consolidated statement
of operations for the year ended June 30, 2001.

     ASSET  IMPAIRMENT  CHARGES -- In connection with the budgeting  process for
the fiscal year ended June 30, 2002,  which was completed in the fourth  quarter
of fiscal 2001, we analyzed  each cost center  within our various  service areas
not  identified  for closure or downsizing to determine  whether the  associated
long-lived assets (e.g., property,  equipment and goodwill) would be recoverable
from future operations. Cost centers represent individual operating units within
a given service area for which separately  identifiable cash flow information is
available.  We  performed  this  analysis as a result of our  expectations  of a
challenging  health  care  reimbursement  environment  as  well  as  anticipated
increases in labor and  insurance  costs with respect to our domestic  ambulance
operations.  This analysis  considered  the results of operations  over the past
year as well as CMS's  failure to  implement  the  ambulance  fee schedule as of
January 1, 2001. The analysis with respect to our Argentine  operations included
the impact of the  deteriorating  economic and political  environment as well as
information  developed by a third party  concerning the  marketability  of these
operations during fiscal 2001.

     In order to assess recoverability, we estimated the related net future cash
flows for each cost center and then compared the resulting  undiscounted amounts
to the carrying value of each cost center's  long-lived  assets (e.g.,  property
and  equipment  and  goodwill).  It should be noted that  property and equipment
balances  are  specifically  identified  with  each cost  center.  Additionally,
goodwill  is  specifically  identified  with  each  cost  center  at the time of
acquisition and, therefore,  related allocations were not necessary for purposes
of performing the impairment analysis.

     For  those  cost  centers  where  estimated  future  net  cash  flows on an
undiscounted basis were less than the related carrying amounts of the long-lived
assets,  an asset  impairment was considered to exist. We measured the amount of

                                       31
<PAGE>
the asset  impairment  for each such cost center by  discounting  the  estimated
future net cash flows using a discount rate of 18.5% and comparing the resulting
amount to the carrying value of its long-lived assets. Based upon this analysis,
the Company determined that asset impairment charges approximating $94.4 million
were  required for cost centers  within our  domestic  and  Argentine  ambulance
operations.  The asset  impairments  were charged  directly  against the related
asset balances. A summary of the related charge is as follows:

                                                   PROPERTY,
                                                   EQUIPMENT
                                       GOODWILL    AND OTHER     TOTAL
                                       --------    ---------    -------
                                                 (IN THOUSANDS)
     Domestic ambulance operations      $41,631     $ 6,419     $48,050
     Argentine ambulance operations      44,327       1,976      46,303
                                        -------     -------     -------
        Total                           $85,958     $ 8,395     $94,353
                                        =======     =======     =======

     RESTRUCTURING  CHARGE AND OTHER -- During the fourth  quarter of the fiscal
year ended June 30, 2001, we decided to close or downsize nine service areas and
in connection therewith,  recorded restructuring and other charges totaling $9.1
million. These charges included $1.5 million to cover severance costs associated
with the termination of approximately 250 employees, lease termination and other
exit costs of $2.6  million,  and asset  impairment  charges  for  goodwill  and
property and equipment of $4.1 million and $0.9 million,  respectively,  related
to the  impacted  service  areas.  The  service  areas  selected  for closure or
downsizing generated revenue of $17.7 million,  operating losses of $4.0 million
and negative cash flow of $3.2 million for the fiscal year ended June 30, 2001.

     During the third and  fourth  quarters  of the  fiscal  year ended June 30,
2000,  we  decided  to close or  downsize  26  service  areas and in  connection
therewith,  recorded  restructuring  and other charges  totaling  $34.0 million.
These charges included $6.6 million to cover severance costs associated with the
termination of approximately  300 employees,  all of whom had been terminated by
June 30, 2001, lease termination and other exit costs of $3.3 million, and asset
impairment  charges for goodwill and property and equipment of $22.3 million and
$1.3 million,  respectively.  The service areas  selected for closure  generated
revenue of $38.7  million,  operating  losses of $3.7 million and negative  cash
flow of $1.0 million for the fiscal year ended June 30, 2000.

     A summary of activity in the  restructuring  reserve,  which is included in
accrued liabilities in the consolidated balance sheets, is as follows:

<TABLE>
<CAPTION>
                                                       LEASE       WRITE-OFF       OTHER
                                       SEVERANCE   TERMINATION   OF INTANGIBLE      EXIT
                                         COSTS         COSTS        ASSETS         COSTS        TOTAL
                                       --------      --------      --------      --------      --------
<S>                                    <C>           <C>           <C>           <C>           <C>
     Balance at June 30, 1999          $  1,328      $     --      $     --      $     --      $  1,328
       Fiscal 2000 charge recorded        6,621         3,299        22,250         1,877        34,047
       Fiscal 2000 usage                 (4,420)          (52)      (22,250)         (521)      (27,243)
                                       --------      --------      --------      --------      --------
     Balance at June 30, 2000             3,529         3,247            --         1,356         8,132
       Fiscal 2001 charge recorded        1,475         2,371         4,092         1,153         9,091
       Fiscal 2001 usage                 (4,531)       (1,071)       (4,092)       (1,360)      (11,054)
       Adjustments                        1,361        (1,313)           --           (48)           --
                                       --------      --------      --------      --------      --------
     Balance at June 30, 2001          $  1,834      $  3,234      $     --      $  1,101      $  6,169
                                       ========      ========      ========      ========      ========
</TABLE>

     DISPOSITION OF CLINIC OPERATIONS -- During the fourth quarter of the fiscal
year ended June 30, 2001,  we sold our Argentine  clinic  operations in exchange
for a $3.0 million  non-interest  bearing note  receivable.  The note,  which is
included in other assets in the  consolidated  balance sheet,  requires  monthly
principal payments of $25,000 through April 2011. The sale resulted in a loss on
disposal of $9.4  million,  including  the  write-off of $9.3 million of related
goodwill.  The clinic operations  generated  revenue of $4.0 million,  operating
losses of $1.5  million and  negative  cash flow of $0.9  million for the fiscal
year ended June 30, 2001.

     CONTRACT  TERMINATION  COSTS AND RELATED  ASSET  IMPAIRMENT  -- In November
2000, we learned that our exclusive 911 contract in Lincoln,  Nebraska would not
be renewed effective December 31, 2000 and in connection  therewith,  recorded a
contract  termination  charge  of  $5.2  million.  This  charge  included  asset
impairments  for related  goodwill  and  equipment  totaling  $4.3  million (the
exclusive 911 contract was acquired in a purchase business combination in fiscal
1995),  $0.8  million  to  cover  severance  costs  associated  with  terminated
employees,  and $0.1 million to cover lease  terminations  and other exit costs.
The Lincoln contract generated revenue of $4.7 million, operating income of $0.4
million  and cash flow of $0.5  million  in fiscal  2000,  its last full year of
operations.

    In May 2001, we learned that our exclusive 911 contract in Arlington,  Texas
would not be renewed effective  September 30, 2001 and in connection  therewith,
recorded a contract  termination  charge of $4.1 million.  This charge  included
asset  impairments  for related  goodwill  and  equipment  of $3.9  million (the
exclusive 911 contract was acquired in a purchase business combination in fiscal
1997),  $0.1  million  to  cover  severance  costs  associated  with  terminated
employees, and $0.1 million to cover lease termination and other exit costs. The

                                       32
<PAGE>
Arlington contract  generated revenue of $8.3 million,  operating income of $0.1
million  and cash flow of $0.5  million  in fiscal  2001,  its last full year of
operations.

     INTEREST EXPENSE -- Interest expense  increased by $4.1 million,  or 15.8%,
from $25.9  million  for the year ended June 30,  2000 to $30.0  million for the
year ended June 30, 2001.  This  increase was caused by higher than average debt
balances  during  fiscal  2001,  fees,  and  additional   interest  incurred  in
conjunction with various waiver agreements.

     OTHER  INCOME  (EXPENSE),  NET  --  Other  income  (expense),  net  expense
increased  by $5.3  million  from other income of $2.9 million in fiscal 2000 to
other  expense of $2.4  million in fiscal  2001.  This  increase  was  primarily
attributable  to a  charge  of  $4.0  million  relating  to the  put  provisions
contained in the joint venture agreement described in Note 6 to the Consolidated
Financial Statements.

     INCOME TAXES -- Our  effective tax rate  decreased  from 24.8% for the year
ended June 30, 2000 to  approximately  (0.8)% for the year ended June 30,  2001.
The decrease in the  effective  tax rate is  primarily  due to the impact of the
valuation  allowance  and other  permanent  differences,  consisting of goodwill
write-offs  and  amortization.  The  permanent  differences  and  the  valuation
allowance  result in a reduction  of the tax benefits  which could  otherwise be
available  in a loss year,  and thus a reduction  in the  effective  tax rate. A
valuation  allowance of approximately $46.4 million has been provided because we
believe that the  realizability of the deferred tax asset does not meet the more
likely than not criteria under SFAS No. 109, "Accounting for Income Taxes."

     EXTRAORDINARY  LOSS -- During the year ended June 30, 2000,  we recorded an
extraordinary  loss on the expropriation of Canadian  ambulance service licenses
of  approximately  $1.2  million  (net  of  $0 of  income  taxes).  We  received
approximately  $2.2 million from the Ontario  Ministry of Health as compensation
for the  loss of  license  and  incurred  costs  and  wrote-off  assets,  mainly
goodwill, totaling $3.4 million.

     CUMULATIVE  EFFECT OF  CHANGE IN  ACCOUNTING  PRINCIPLE  -- The  cumulative
effect of change in accounting principle in the fiscal year ended June 30, 2000,
resulted in a $541,000 approximate charge (net of a tax benefit of approximately
$392,000)  and  was  related  to  our   expensing  of   previously   capitalized
organization  costs in accordance with Statement of Position 98-5,  REPORTING ON
THE COSTS OF START-UP ACTIVITIES.

SEASONALITY AND QUARTERLY RESULTS

     The following table reflects certain selected unaudited quarterly operating
results for each quarter of fiscal 2002 and 2001.  The operating  results of any
quarter are not necessarily indicative of results of any future period.

<TABLE>
<CAPTION>
                                                                            2002
                                                     --------------------------------------------------
                                                       FIRST         SECOND       THIRD        FOURTH
                                                     QUARTER(1)    QUARTER(2)   QUARTER(3)   QUARTER(4)
                                                     ----------    ----------   ----------   ----------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>           <C>          <C>          <C>
Net revenue .......................................   $125,667      $123,759     $124,661     $122,951
Operating income ..................................      5,690         7,227       10,837        3,052
Net income (loss) before cumulative effect of
  change in accounting principle ..................     (1,190)        3,170        4,364       (2,453)
Net income (loss) .................................    (50,704)        3,170        4,364       (2,453)
Basic income (loss) per share before cumulative
  effect of change in accounting principle ........   $  (0.08)     $   0.21     $   0.28     $  (0.16)
Basic income (loss) per share .....................   $  (3.37)     $   0.21     $   0.28     $  (0.16)
Diluted income (loss) per share before cumulative
  effect of change in accounting principle ........   $  (0.08)     $   0.21     $   0.28     $  (0.16)
Diluted income (loss) per share ...................   $  (3.37)     $   0.21     $   0.28     $  (0.16)
</TABLE>

                                       33
<PAGE>
                                                     2001
                               -------------------------------------------------
                                 FIRST        SECOND       THIRD       FOURTH
                                QUARTER     QUARTER(5)   QUARTER(6)   QUARTER(7)
                               ---------    ----------   ----------   ----------
                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue ................   $ 128,238    $ 125,209    $ 126,722    $ 124,147
Operating income (loss) ....       3,213      (13,770)     (16,034)    (165,862)
Net loss ...................      (4,085)     (21,574)     (23,646)    (177,426)
Basic loss per share .......   $   (0.28)   $   (1.47)   $   (1.60)   $  (11.91)
Diluted loss per share .....   $   (0.28)   $   (1.47)   $   (1.60)   $  (11.91)

----------
(1)  We changed our method of accounting for goodwill effective July 1, 2001 and
     discontinued amortizing goodwill as of that date. During the fourth quarter
     of fiscal  2002,  we  completed  the  transitional  impairment  test of our
     goodwill and recorded a related $49.5  million  charge ($3.14 per share) as
     the cumulative  effect of change in accounting  principle in restated first
     quarter results.

(2)  In the second  quarter of fiscal 2002, we recorded an income tax benefit of
     $1.6 million related to an income tax refund received during the quarter.

(3)  In  the  third  quarter  of  fiscal  2002,  we  reversed  $1.7  million  of
     discretionary  employee benefits  previously  accrued for the calendar year
     ended December 31, 2000.

(4)  In the fourth quarter of fiscal 2002, we accrued $2.0 million of additional
     workers'  compensation  claim  reserves  in  conjunction  with a review  of
     existing  reserve  levels.  Additionally,  we  reversed an accrual for $1.3
     million  related to an audit  settlement with a Medicare  intermediary  and
     $1.3  million  of our paid time off  accrual  as a result of changes to the
     related policies.

(5)  In the  second  quarter  of  fiscal  2001,  we  recorded  a  $10.0  million
     additional  provision for doubtful accounts related to the uncollectibility
     of  receivables  in service areas closed in fiscal 2000. We also recorded a
     $5.2 million  charge  related to the loss of an  exclusive  911 contract in
     Lincoln, Nebraska.

(6)  In the third  quarter of fiscal  2001,  we recorded a $5.0  million  charge
     related  to  increased   claims   experience   in  workers'   compensation.
     Additionally,  we recorded a $15.0 million charge for increases in reserves
     for reported  claims as well as to establish  reserves for claims  incurred
     but not reported.

(7)  In the fourth quarter of fiscal 2001, we recorded additional provisions for
     doubtful  accounts  of $16.2  million,  $94.4  million of asset  impairment
     charges,  $9.4 million related to the  disposition of clinic  operations in
     Argentina,  $9.1 million of restructuring and other charges, a $4.1 million
     charge  related to the loss of an  exclusive  911  contract  in  Arlington,
     Texas, $5.4 million related to increased claim estimates on employee health
     insurance,  $3.0 million  related to the accrual of paid time off for field
     personnel,  $8.4  million  related to  inventory  write-offs,  $1.3 million
     related to Medicaid audit, $1.0 million related to write-off of amounts due
     from a former seller,  $8.5 million related to asset write-offs and reserve
     adjustments at our various  Argentine  subsidiaries,  $3.1 million of other
     asset write-offs,  and $4.0 million related to the put provisions contained
     in a joint venture agreement.

     We have  historically  experienced,  and expect to continue to  experience,
seasonality in quarterly operating results. This seasonality has resulted from a
number of factors,  including  relatively higher second and third fiscal quarter
demand for transport  services in our Arizona and Florida regions resulting from
the greater winter populations in those regions.

     Public health  conditions  affect our  operations  differently in different
regions.  For  example,  greater  utilization  of  services by  customers  under
capitated  service   arrangements   decrease  our  operating  income.  The  same
conditions  domestically,  where we operate under fee-for-service  arrangements,
result in a greater number of transports, increasing our operating income.

LIQUIDITY AND CAPITAL RESOURCES

     During fiscal 2002,  we incurred a net loss of $45.6 million  compared with
net losses of $226.7 million in fiscal 2001 and $101.3 million in 2002. (The net
loss in fiscal 2002 included a charge of $49.5 million  relating to the adoption
effective  July 1, 2002 of SFAS 142.  The net  losses in fiscal  2001 and fiscal
2000 included asset impairment, restructuring and other similar charges totaling

                                       34
<PAGE>
$122.0  million and $34.0  million,  respectively.)  Cash  provided by operating
activities totaled $9.3 million in fiscal 2002 and $7.9 million in 2001 and cash
used in operating activities totaled $11.6 million in fiscal 2000.

     At June 30, 2002, we had cash of $9.8 million, total debt of $300.2 million
and a stockholders'  deficit of $165.3 million.  Our total debt at June 30, 2002
included  $149.9  million of our 7 7/8% senior  notes due 2008,  $144.4  million
outstanding  under our  revolving  credit  facility,  $4.6 million  payable to a
former joint venture partner and $1.3 million of capital lease obligations.

     As discussed below, we were not in compliance with certain of the covenants
contained in our revolving  credit  facility.  On September 30, 2002, we entered
into an amended  credit  facility  with our lenders  which,  among other things,
extended the maturity date of the facility from March 16, 2003 through  December
31,  2004,  waived  previous  non-compliance,  and  required the issuance to the
lenders of 211,549 shares of our Series B convertible preferred stock.

     Our ability to service our long-term debt, to remain in compliance with the
various  restrictions  and covenants  contained in our credit  agreements and to
fund working capital, capital expenditures and business development efforts will
depend on our  ability  to  generate  cash from  operating  activities  which is
subject to, among other things,  our future operating  performance as well as to
general  economic,  financial,  competitive,  legislative,  regulatory and other
conditions, some of which may be beyond our control.

     If we fail to  generate  sufficient  cash from  operations,  we may need to
raise  additional  equity or borrow  additional funds to achieve our longer term
business  objectives.  There can be no assurance  that such equity or borrowings
will be available or, if available, will be at rates or prices acceptable to us.
Although  there can be no  assurances,  management  believes that cash flow from
operating  activities  coupled with  existing  cash balances will be adequate to
fund our operating and capital needs as well as enable us to maintain compliance
with our various  debt  agreements  through  June 30,  2003.  To the extent that
actual  results or events  differ  from our  financial  projections  or business
plans, our liquidity may be adversely impacted.

     Historically,  we have financed our cash requirements  principally  through
cash flow from operating activities,  term and revolving  indebtedness,  capital
equipment lease  financing,  issuance of senior notes,  the sale of common stock
through an initial  public  offering in July 1993 and  subsequent  public  stock
offerings in May 1994 and April 1996, and the exercise of stock options.

     During the year ended June 30, 2002,  cash flow provided by operations  was
approximately $9.3 million resulting primarily from a net loss of $45.6 million,
offset by the effect of a non-cash  cumulative  effect in a change in accounting
principle of $49.5 million,  non-cash  depreciation and amortization  expense of
$16.2   million  and  provision   for  doubtful   accounts  of  $69.9   million.
Additionally,  cash flow from operating  activities was negatively impacted by a
decrease in accrued  liabilities of approximately  $11.6 million and an increase
in accounts  receivable of $67.3  million.  Cash flow provided by operations was
approximately $7.9 million for the year ended June 30, 2001.

     Cash used in financing  activities was  approximately  $2.7 million for the
year ended June 30, 2002,  primarily due to  repayments on the revolving  credit
facility and on other debt and capital lease obligations. Cash used in financing
activities was approximately $5.9 million for the year ended June 30, 2001.

     Cash used in investing  activities was  approximately  $5.8 million for the
year ended June 30, 2002 due primarily to capital  expenditures of approximately
$6.9  million  offset by proceeds  from the sale of property  and  equipment  of
approximately $1.0 million.  Cash used in investing activities was approximately
$3.8 million for the year ended June 30, 2001,  due to capital  expenditures  of
approximately  $5.8  million  net of  proceeds  from  the sale of  property  and
equipment of $2.0 million.

     Our accounts  receivable,  net of the allowance for Medicare,  Medicaid and
contractual  discounts  and  doubtful  accounts,  were $99.1  million and $103.3
million as of June 30, 2002 and 2001, respectively. The decrease in net accounts
receivable is due to many  factors,  including  the  collection  of  outstanding
receivables   related  to  closed  service  areas  and  overall  improvement  in
collections on existing operations.

     The allowance for doubtful  accounts  decreased  from  approximately  $65.2
million at June 30, 2001 to  approximately  $32.7 million at June 30, 2002.  The
primary reason for this decrease is the write-off of  uncollectible  receivables

                                       35
<PAGE>
offset by the current period provision for doubtful accounts. We have instituted
several  initiatives  to improve our  collection  procedures.  While  management
believes that we have a predictable  method of determining the realizable  value
of our accounts receivable,  based on continuing  difficulties in the healthcare
reimbursement  environment,  there can be no  assurance  that  there will not be
additional future  write-offs.  See Risk Factors -- "We depend on reimbursements
by third-party payers and individuals."

     With respect to our general liability  insurance policy for the policy year
commencing in June 2000, we are required to set aside  $100,000 per month into a
designated  "loss fund" account,  which cash is restricted to the payment of our
deductible  obligations as required under such policy. A similar funding program
is in place with  respect to our  general  liability  policy for the policy year
commencing in June 2001. We expect to fund these  deposits on a monthly basis in
subsequent  years  until  such time as our total  loss fund  deposits  equal the
contractual ceiling on our total deductible obligation under these policies. The
loss fund deposits are used as necessary to pay our deductible portion of claims
related to the applicable policy year. Accordingly,  the loss fund balances vary
during the course of the year  depending  upon the  frequency  and  severity  of
claims payments;  however,  we typically maintain a minimum balance in each loss
fund of at least  $250,000.  An  unanticipated  increase  in the  frequency  and
severity of claims  payments at any one time could  exceed the  applicable  loss
fund balance for that policy year, in which case,  such claims  payments  could,
either  individually or in the aggregate,  have a material adverse effect on our
business,  financial condition, cash flows and results of operations.  See "Risk
Factors -- We have experienced  material  increases in the cost of our insurance
and surety programs and in related collateralization requirements."

     During fiscal years 1992 through 2001, we purchased certain portions of our
workers'  compensation  coverage from Reliance Insurance Company (Reliance).  At
the time we purchased the coverage, Reliance was an "A" rated insurance company.
In connection with this coverage,  we provided Reliance with various amounts and
forms of collateral (e.g., letters of credit, surety bonds and cash deposits) to
secure our  performance  under the  respective  policies  as was  customary  and
required in the workers'  compensation  marketplace  at the time. As of June 30,
2002, Reliance held $3.0 million of cash collateral under this coverage.

     On  May  29,  2001,  Reliance  was  placed  under   rehabilitation  by  the
Pennsylvania  Insurance  Department (the  Department) and on October 3, 2001 was
placed into liquidation by the Department. As mentioned previously,  the cash on
deposit  with  Reliance  serves  to secure  our  performance  under the  related
policies;  specifically,  the  payment  by us of  claims  within  our  level  of
retention  in the  various  policy  years.  Consistent  with past  practice,  we
periodically fund an imprest account maintained by our third-party administrator
who actually makes claim payments on our behalf.  It is our  understanding  that
the cash collateral held by the Reliance  liquidator will be returned to us once
all related  claims have been  satisfied so long as we have  satisfied our claim
payment  obligations under the related  policies.  To the extent that certain of
our workers'  compensation claims have exceeded our level of retention under the
Reliance  policies,  the  applicable  state  guaranty  funds have  provided such
coverage at no additional cost to us.

     For fiscal 2002, we purchased certain portions of our workers' compensation
coverage from Legion Insurance  Company  (Legion).  At the time we purchased the
coverage,  Legion was an "A" rated  insurance  carrier.  In connection  with the
Legion policy, we deposited $6.2 million into a "cell-captive" insurance program
managed by Mutual Risk Management  (MRM),  an affiliate of Legion.  This deposit
approximated  the amount of claims  within our level of retention for the policy
year May 1, 2001 through April 30, 2002. In contrast to the deposits placed with
Reliance,  this deposit is not  collateral to secure our  performance  under the
policy but rather  represents  funds to be used by MRM to pay claims  within our
level of retention on our behalf.  As of June 30, 2002, MRM held $5.7 million of
cash under this program.

     On April 1, 2002, Legion was placed under rehabilitation by the Department.
MRM has  continued to utilize the cash on deposit to make claim  payments on our
behalf.  Additionally,  it is our  understanding  that these funds represent our
assets and are not general assets of Legion or MRM.

     Based on the information  currently available,  we believe that the amounts
on deposit with Reliance and Legion/MRM are fully recoverable and will either be
returned to us or used to pay claims on our behalf.  Our inability to access the
funds on  deposit  with  either  Reliance  or  Legion/MRM  could have a material
adverse effect on our business,  financial condition,  results of operations and
cash flows.

                                       36
<PAGE>
     We had working capital of $28.0 million at June 30, 2002, including cash of
$9.8 million.  Including the  classification of the entire  outstanding  balance
under the revolving  credit facility and senior notes as a current  liability at
June 30, 2001, we had a working capital deficiency of $286.5 million,  including
cash of $8.7 million.

     In March 1998, we entered into a $200.0 million  revolving  credit facility
originally  scheduled to mature March 16, 2003. The credit facility is unsecured
and was unconditionally guaranteed on a joint and several basis by substantially
all of our domestic wholly owned current and future subsidiaries. Interest rates
and  availability  under the revolving  credit facility  depended on our meeting
certain financial covenants, including total debt leverage ratios, total debt to
capitalization ratios, and fixed charge ratios.

     The revolving  credit  facility  initially was priced at the greater of (i)
prime rate or Federal Funds rate plus 0.5% plus the applicable margin, or (ii) a
LIBOR-based  rate. The LIBOR-based  rates ranged from LIBOR plus 0.875% to LIBOR
plus 1.75%.

     In  December  1999,  primarily  as a result of  additional  provisions  for
doubtful accounts,  we entered into noncompliance with three financial covenants
under the revolving  credit facility:  total debt leverage ratio,  total debt to
total capitalization ratio and fixed charge coverage ratio. We received a series
of compliance  waivers  regarding the financial  covenants  covering the periods
from December 31, 1999 through April 1, 2002.  The waivers  provided among other
things,  for enhanced  reporting and other  requirements  and that no additional
borrowings would be available to us.

     Pursuant to the  waivers,  as LIBOR  contracts  expired in March 2000,  all
borrowings  were priced at prime rate plus 0.25  percentage  points and interest
became payable monthly. Pursuant to the waivers, we also were required to accrue
additional  interest  expense  at a rate of 2.0% per  annum  on the  outstanding
balance on the revolving credit facility.  We have recorded  approximately  $6.6
million  related to this  additional  interest  expense  through  June 30, 2002,
approximately  $6.1 million of which remains in accrued  liabilities at June 30,
2002.  In connection  with the waivers,  we also made  principal  payments in an
aggregate amount of $5.2 million.

     At June 30,  2002,  the  weighted  average  interest  rate,  including  the
additional  interest  described above, was approximately  7.04% on the revolving
credit  facility.  A  principal  balance of  approximately  $144.4  million  was
outstanding on the revolving  credit facility at June 30, 2002. Also outstanding
at June 30,  2002 were $3.5  million  in  letters  of  credit  issued  under the
revolving credit facility.

     Although we were not aware of any event of default  under  either the terms
of the  revolving  credit  facility  (as a result of the  waivers) or our Senior
Notes,  and although there was no acceleration of the repayment of the revolving
credit  facility or the Senior Notes,  the balances  were  classified as current
liabilities at June 30, 2001 and 2000 in accordance  with Statement of Financial
Accounting  Standards  (SFAS) No. 78  "Classification  of  Obligations  that are
Callable by the Creditor."

     Effective  September 30, 2002, we entered into an amended  credit  facility
pursuant to which,  among other things, the maturity date of the credit facility
was extended to December 31, 2004 and our prior  noncompliance  (including  such
noncompliance as of June 30, 2002) was permanently waived.

     The  principal  terms of the amended and restated  credit  agreement are as
follows:

     *    WAIVER. Prior noncompliance was permanently waived with respect to the
          covenant violations  described above and with respect to certain other
          noncompliance items, including non-reimbursement of approximately $2.6
          million recently drawn by beneficiaries under letters of credit issued
          under the original facility.

     *    MATURITY  DATE.  The  maturity  date of the  facility  was extended to
          December 31, 2004.

     *    PRINCIPAL   BALANCE.    Accrued   interest   (as   described   above),
          non-reimbursed  letters  of  credit  and  various  fees  and  expenses
          associated  with  the  amended  credit  facility  were  added  to  the
          principal  amount of the loan,  resulting in an outstanding  principal
          balance  as of the  effective  date of the  amendment  equal to $152.4
          million.

     *    NO REQUIRED AMORTIZATION. No principal payments are required until the
          maturity date of the facility.

     *    INTEREST  RATE.  The  interest  rate was  increased to LIBOR plus 7.0%
          (8.8% as of the effective date of the amendment), payable monthly. (By
          comparison,  the effective  interest rate  (including the 2.0% accrued

                                       37
<PAGE>
          interest   described  above)   applicable  to  the  original  facility
          immediately prior to the effective date of the amendment was 7.0%.)

     *    FINANCIAL COVENANTS.  The amended facility includes the same financial
          covenants  as were  included in the  original  credit  facility,  with
          compliance  levels under such covenants  adjusted to levels consistent
          with current  business levels and outlook.  The covenants  include (i)
          total  debt  leverage  ratio  (initially  set at 7.48),  (ii)  minimum
          tangible net worth (initially set at a $230.1 million deficit),  (iii)
          fixed charge coverage ratio  (initially set at 0.99),  (iv) limitation
          on  capital  expenditures  of $11  million  per fiscal  year;  and (v)
          limitation  on  operating  leases  during  any  period of four  fiscal
          quarters to 3.10% of consolidated net revenues.  The compliance levels
          for covenants  (i) through (iii) above are set at varying  levels on a
          quarterly basis. Compliance is tested quarterly based on annualized or
          year-to-date results as applicable.

     *    OTHER  COVENANTS.   The  amended  credit  facility   includes  various
          non-financial  covenants  equivalent in scope to those included in the
          original  facility.  The covenants include  restrictions on additional
          indebtedness,  liens,  investments,  mergers and  acquisitions,  asset
          sales,  and  other  matters.  The  amended  credit  facility  includes
          extensive financial  reporting  obligations and provides that an event
          of default  occurs  should we lose  customer  contracts  in any fiscal
          quarter  with  EBITDA  contribution  of $5  million  or  more  (net of
          anticipated contribution from new contracts).

     *    EXISTING LETTERS OF CREDIT. Pursuant to the amended facility,  letters
          of credit issued  pursuant to the original  credit  agreement  will be
          reissued  or  extended,  to a maximum of $3.5  million,  for letter of
          credit fees aggregating 1 7/8% per annum. A third letter of credit, in
          the  amount  of  $2.6  million  which  previously  was  drawn  by  its
          beneficiary,  will be  reissued  subject to  application  of the funds
          originally drawn in reduction of the principal balance of the facility
          and payment of a letter of credit fee equal to 7% per annum.

     *    EQUITY INTEREST.  In consideration of the amended facility,  we issued
          shares of our Series B convertible preferred stock to the participants
          in the amended  credit  facility.  The preferred  stock is convertible
          into 2,115,490 common shares (10% of the post-conversion common shares
          outstanding on a diluted basis, as defined). Because sufficient common
          shares are not currently available to permit conversion,  we intend to
          seek stockholder approval to amend our certificate of incorporation to
          authorize additional common shares. Conversion of the preferred shares
          occurs  automatically  upon approval by our stockholders of sufficient
          common shares to permit  conversion.  Should our stockholders  fail to
          approve such a proposal by December  31, 2004,  we will be required to
          redeem the  preferred  stock for a price  equal to the  greater of $15
          million or the value of the  common  shares  into which the  preferred
          shares would otherwise have been convertible.  In addition, should our
          stockholders  fail to approve  such a proposal,  the  preferred  stock
          enjoys a preference  upon a sale of our company,  a sale of our assets
          and in certain other circumstances; this preference equals the greater
          of (i) the value of the common shares into which the  preferred  stock
          would  otherwise  have been  convertible  or (ii) $10  million,  $12.5
          million or $15  million  depending  on whether  the  triggering  event
          occurs  prior to January 31,  2003,  December 31, 2003 or December 31,
          2004,  respectively.  At the  election  of the holder,  the  preferred
          shares  carry  voting  rights as if such  shares were  converted  into
          common  shares.  The  preferred  shares  do not bear a  dividend.  The
          preferred  shares (and common shares  issuable upon  conversion of the
          preferred  shares) are entitled to certain  registration  rights.  The
          terms of the  preferred  shares limit us from  issuing  senior or pari
          passu  preferred  shares and from paying  dividends  on, or redeeming,
          shares of junior stock.

     Primarily because no principal  amortization is required and because of the
long-term  nature of this  amendment,  the  outstanding  balance  on the  credit
facility is classified as long-term debt in the consolidated balance sheet as of
June 30, 2002.  Additionally,  as we are now in compliance with the terms of the
credit  facility,  we have also  classified the senior note balance to long-term
debt.

     Due  to the  higher  interest  rate  associated  with  the  amended  credit
facility,   we  anticipate   that  our  cash  interest   expense  will  increase
approximately $5.6 million. Additionally, the fair value of the preferred stock,
and other deferred financing costs associated with the amended facility, will be
amortized to interest expense over the life of the agreement.

     In March 1998,  we issued  $150.0  million of 7 7/8% Senior  Notes due 2008
(the  Notes)  under  Rule 144A  under the  Securities  Act of 1933,  as  amended
(Securities Act). Interest under the Notes is payable semi-annually on September
15 and March 15, and the Notes are not callable  until March 2003 subject to the
terms  of the  Indenture.  We  incurred  expenses  related  to the  offering  of
approximately  $5.3 million and will  amortize  these costs over the life of the
Notes.  We  recorded a $258,000  discount  on the Notes and will  amortize  this
discount over the life of the Notes.  Unamortized  discount at June 30, 2002 was

                                       38
<PAGE>
approximately  $148,000,  and  this  amount  is  recorded  as an  offset  to the
long-term debt, net of current portion in the Consolidated Financial Statements.
In April  1998,  we filed a  registration  statement  under the  Securities  Act
relating to an exchange offer for the Notes. The  registration  became effective
on May 14, 1998. The Notes are general unsecured  obligations of our company and
are unconditionally guaranteed on a joint and several basis by substantially all
of our domestic  wholly owned  current and future  subsidiaries.  See Note 10 of
notes to our  Consolidated  Financial  Statements.  The  Notes  contain  certain
covenants  that,  among  other  things,  limit  our  ability  to  incur  certain
indebtedness, sell assets, or enter into certain mergers or consolidations.

     Since March 2000, we have satisfied all of our cash needs through cash flow
from operations and our cash reserves.  Similarly, we expect that cash flow from
operations  and our  existing  cash  reserves  will be  sufficient  to meet  our
regularly scheduled debt service and our planned operating and capital needs for
the 12 months subsequent to June 30, 2002. Through our restructuring  program we
have closed or downsized  several  locations that were negatively  impacting our
cash flow. In addition, we have significantly reduced our corporate overhead. We
have improved the quality of our revenue and have experienced an upward trend in
daily cash collections.

     There  can be no  assurance  that we  will  meet  our  targeted  levels  of
operating  cash  flow  or  that  we will  not  incur  significant  unanticipated
liabilities. Similarly, there can be no assurance that we will be able to obtain
additional  debt or equity  financing  on terms  satisfactory  to us, or at all,
should cash flow from  operations  and our existing cash  resources  prove to be
inadequate.  As discussed above, though we have recently successfully negotiated
an amendment  and extension of our credit  facility,  we will not have access to
additional borrowings under such facility. If we are required to seek additional
financing, any such arrangement may involve material and substantial dilution to
existing  stockholders  resulting from,  among other things,  issuance of equity
securities or the conversion of all or a portion of our existing debt to equity.
In such event,  the  percentage  ownership of our current  stockholders  will be
materially reduced,  and such equity securities may have rights,  preferences or
privileges senior to our current common  stockholders.  If we require additional
financing but are unable to obtain it, our business,  financial condition,  cash
flows and results of operations may be materially adversely affected.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS

     Since 1991,  the  Argentine  peso had been pegged to the U.S.  dollar at an
exchange  rate of 1 to 1. In December  2001,  the Argentine  government  imposed
exchange  restrictions  which severely limited cash conversions and withdrawals.
When exchange  houses  reopened on January 11, 2002, the peso to dollar exchange
rate closed at 1.7 pesos to the dollar.

     Our Argentine  subsidiaries  utilized the peso as their functional currency
as their  business was primarily  transacted  in pesos.  In order to prepare the
accompanying financial statements as of and for the year ended June 30, 2002, we
translated the balance sheets of our Argentine  subsidiaries  using the 3.9 to 1
exchange  rate,  the closing  rate on June 30,  2002,  while our  statements  of
operations  and cash flows were  translated  using the weighted  average rate in
effect  during the period.  As the  liabilities  of the  Argentine  subsidiaries
exceed  their  assets,  the change in  exchange  rates  resulted  in a credit to
accumulated other comprehensive  income in our consolidated  balance sheet as of
June 30, 2002.  Further  fluctuations  in the peso to dollar  exchange rate will
impact the translation of the financial statements of the Argentine subsidiaries
for financial reporting purposes.

     As a result of the sale of our Latin American operations in September 2002,
it is not anticipated  that future  fluctuations in the currency  exchange rates
will have an adverse effect on us.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

     We  have  certain  cash  contractual   obligations   related  to  our  debt
instruments that come due at various times over the periods  presented below. In
addition we have other  commitments in the form of standby letters of credit and
surety bonds. The following table  illustrates the expiration of our contractual
cash obligations as well as other commitments as of June 30, 2002.

     The amounts related to the credit facility in the following table have been
adjusted to include  the impact of accrued  interest  and costs  ($8.1  million)
resulting  from the  September  30,  2002  amendment  to the  related  agreement
described in Note 10 to the Consolidated Financial Statements. Additionally, the
potential preferred stock redemption obligation ($15.0 million) relating to that
amendment has been included in the table of other commitments.

                                       39
<PAGE>
<TABLE>
<CAPTION>
                                                       PAYMENTS DUE BY PERIOD
                                     ---------------------------------------------------------
                                                 LESS THAN                            AFTER
   CONTRACTUAL OBLIGATIONS             TOTAL       1 YEAR    1-3 YEARS   4-5 YEARS    5 YEARS
   -----------------------           ---------   ---------   ---------   ---------   ---------
<S>                                  <C>         <C>         <C>         <C>         <C>
Credit facility                      $ 152,420   $      --   $ 152,420   $      --   $      --
Senior notes                           150,000          --          --          --     150,000
Capital leases and notes payable         5,941       1,633       2,683       1,484         141
Operating leases                        38,476       7,878      12,511       7,851      10,236
                                     ---------   ---------   ---------   ---------   ---------

Total contractual cash obligations   $ 346,837   $   9,511   $ 167,614   $   9,335   $ 160,377
                                     =========   =========   =========   =========   =========

    OTHER COMMITMENTS                       AMOUNT OF COMMITMENT EXPIRATION BY PERIOD
    -----------------                ---------------------------------------------------------
Standby letters of credit            $   3,500   $   3,500   $      --   $      --   $      --
                                     =========   =========   =========   =========   =========
Surety bonds                         $  10,127   $   8,763   $   1,364   $      --   $      --
                                     =========   =========   =========   =========   =========
Preferred stock redemption           $  15,000   $      --   $  15,000   $      --   $      --
                                     =========   =========   =========   =========   =========
</TABLE>

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 143,  Accounting for Asset  Retirement  Obligations  (SFAS 143).  Under this
standard, asset retirement obligations will be recognized when incurred at their
estimated fair value. In addition,  the cost of the asset retirement obligations
will be capitalized as a part of the asset's carrying value and depreciated over
the  asset's  remaining  useful  life.  We will be  required  to adopt  SFAS 143
effective  July 1, 2002 and does not expect that it will have a material  impact
on our financial condition or results of operations.

     In  October,  2001,  the FASB  issued  SFAS  No.  144,  Accounting  for the
Impairment or Disposal of Long-Lived  Assets (SFAS 144). This standard  requires
that all long-lived  assets (including  discontinued  operations) that are to be
disposed  of by sale be  measured  at the lower of book value or fair value less
cost  to  sell.  Additionally,  SFAS  144  expands  the  scope  of  discontinued
operations to include all  components of an entity with  operations  that can be
distinguished  from  the rest of the  entity  and  will be  eliminated  from the
ongoing  operations  of  the  entity  in a  disposal  transaction.  SFAS  144 is
effective as of July 1, 2002. We do not expect the implementation of SFAS 144 to
have a material effect on our financial condition or results of operations.

     In April 2002, the FASB issued SFAS No. 145,  Rescission of FAS Nos. 4, 44,
and 64,  Amendment of FAS 13, and Technical  Corrections  as of April 2002 (SFAS
145).  This  standard  rescinds  SFAS No. 4,  Reporting  Gains and  Losses  from
Extinguishment  of Debt,  and an  amendment  of that  Statement,  SFAS  No.  64,
Extinguishments of Debt Made to Satisfy  Sinking-Fund  Requirements and excludes
extraordinary   item  treatment  for  gains  and  losses   associated  with  the
extinguishment  of debt that do not meet the APB Opinion No. 30,  Reporting  the
Results of  Operations  --  Reporting  the Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions (APB 30) criteria.  Any gain or loss on extinguishment of debt that
was classified as an extraordinary item in prior periods presented that does not
meet the criteria in APB 30 for classification as an extraordinary item shall be
reclassified.  SFAS 145 also  amends SFAS 13,  Accounting  for Leases as well as
other  existing   authoritative   pronouncements   to  make  various   technical
corrections,  clarify meanings,  or describe their  applicability  under changed
conditions.  We are required to adopt SFAS 145 effective  July 1, 2002 and we do
not expect that it will have a material  impact on our  financial  condition  of
results of operations.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal  Activities (SFAS 146). This standard addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and replaces  Emerging Issues Task Force Issue No. 94-3,  Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain Costs  Incurred in a  Restructuring)  (EITF 94-3).  SFAS 146
requires that a liability for costs associated with an exit or disposal activity
be recognized  when the liability is incurred.  Under EITF 94-3, a liability for
exit  costs,  as  defined  in EITF No.  94-3 were  recognized  at the date of an
entity's  commitment to an exit plan.  The  provisions of SFAS 146 are effective
for exit or disposal activities that are initiated after December 31, 2002.

                                       40
<PAGE>
                                  RISK FACTORS

     THE FOLLOWING  RISK FACTORS,  IN ADDITION TO THOSE  DISCUSSED  ELSEWHERE IN
THIS REPORT, SHOULD BE CAREFULLY CONSIDERED IN EVALUATING US AND OUR BUSINESS.

WE HAVE SIGNIFICANT INDEBTEDNESS.

     We  have   significant   indebtedness.   As  of  June  30,  2002,  we  have
approximately $300.2 million of consolidated indebtedness,  consisting primarily
of $150.0  million of 7 7/8% senior notes due in 2008 and  approximately  $144.4
million  outstanding  under a revolving  credit facility which was  subsequently
amended.  The outstanding  principal  balance under the amended  facility totals
$152.4 million.

     Our  ability  to  service  our  debt   depends  on  our  future   operating
performance,  which is affected by  governmental  regulations,  the state of the
economy,  financial factors, and other factors,  certain of which are beyond our
control.  We may not generate sufficient funds to enable us to make our periodic
debt payments.  Failure to make our periodic debt payments could have a material
adverse effect on our business,  financial condition,  results of operations and
cash flows.

OUR  LOAN  AGREEMENTS   REQUIRE  US  TO  COMPLY  WITH  NUMEROUS   COVENANTS  AND
RESTRICTIONS.

     The  agreement  governing  the terms of the senior notes  contains  certain
covenants limiting our ability to:

     *  incur certain additional debt         *  create certain liens
     *  pay dividends                         *  issue guarantees
     *  redeem capital stock                  *  enter into transactions with
                                                 affiliates
     *  make certain investments              *  sell assets
     *  issue capital stock of subsidiaries   *  complete certain mergers and
                                                 consolidations

     The amended credit facility  contains other more restrictive  covenants and
requires us to satisfy certain financial tests,  including a total debt leverage
ratio, a total debt to total capitalization ratio, and a fixed charge ratio. Our
ability to satisfy  those  covenants  can be  affected by events both within and
beyond our control, and we may be unable to meet these covenants.

     A breach of any of the covenants or other terms of our debt could result in
an event of default  under the amended  credit  facility or the senior  notes or
both,  which could have a material  adverse  effect on our  business,  financial
condition, results of operations and cash flows.

WE MAY NOT BE ABLE TO GENERATE SUFFICIENT OPERATING CASH FLOW.

     Despite  significant net losses in fiscal 2001 and 2000, our  restructuring
efforts  have  enabled us to  self-fund  our  operations  since  March 2000 from
existing  cash reserves and operating  cash flow.  However,  we may be unable to
sustain our  targeted  levels of  operating  cash flow.  Our ability to generate
operating  cash  flow will  depend  upon  various  factors,  including  industry
conditions, economic conditions, competitive conditions, and other factors, many
of which are beyond our  control.  Because of our  significant  indebtedness,  a
substantial  portion  of our cash  flow from  operations  is  dedicated  to debt
service and is not available for other purposes. The terms of our amended credit
facility  do not permit  additional  borrowings  thereunder.  In  addition,  the
amended  credit  facility  and the senior  notes also  restrict  our  ability to
provide collateral to any prospective lender.

     If we are unable to meet our targeted  levels of operating cash flow, or in
the event of an unanticipated  cash requirement  (such as an adverse  litigation
outcome,  reimbursement  delays,  or  other  matters)  we will  need  to  pursue
additional debt or equity financing.  Any such financing may not be available on
terms  acceptable to us, or at all. If we issue equity  securities in connection
with any such arrangement,  the percentage ownership of our current stockholders
will be  materially  reduced,  and  such  equity  securities  may  have  rights,
preferences or privileges senior to our current common stockholders.  Failure to
maintain adequate operating cash flow will have a material adverse effect on our
business, financial condition, results of operations and cash flows.

                                       41
<PAGE>
WE DEPEND ON REIMBURSEMENTS BY THIRD-PARTY PAYERS AND INDIVIDUALS.

     We receive a  substantial  portion of our payments for  ambulance  services
from third-party payers, including Medicare,  Medicaid, and private insurers. We
received   approximately   87%  of  our  ambulance  fee  collections  from  such
third-party  payers  during  fiscal  2002,  including   approximately  26%  from
Medicare.  In fiscal 2001, we also received  approximately  87% of ambulance fee
collections from these third parties, including approximately 25% from Medicare.

     The reimbursement  process is complex and can involve lengthy delays.  From
time to time, we  experience  these delays.  Third-party  payers are  continuing
their efforts to control  expenditures for health care,  including  proposals to
revise  reimbursement  policies.  We recognize revenue when we provide ambulance
services;  however,  there can be lengthy delays before we receive  payment.  In
addition,  third-party  payers may disallow,  in whole or in part,  requests for
reimbursement  based on assertions that certain amounts are not  reimbursable or
additional supporting  documentation is necessary.  Retroactive  adjustments may
change amounts realized from third-party  payers. We are subject to governmental
audits of our Medicare and Medicaid  reimbursement claims and may be required to
repay these agencies if a finding is made that we were  incorrectly  reimbursed.
Delays and uncertainties in the reimbursement process adversely affect the level
of accounts  receivable,  increase  the  overall  costs of  collection,  and may
adversely affect our working capital and cause us to incur additional  borrowing
costs.

     We also face the continuing  risk of  non-reimbursement  to the extent that
uninsured individuals require emergency ambulance service in service areas where
an adequate subsidy is not provided.  Amounts not covered by third-party  payers
are the obligations of individual patients.  We may not receive whole or partial
reimbursement from these uninsured individuals. We continually review the mix of
activity  between  emergency  and  general  medical  transport  in  view  of the
reimbursement  environment  and evaluate  methods of  recovering  these  amounts
through the collection process.

     We establish an allowance for Medicare,  Medicaid and contractual discounts
and  doubtful  accounts  based on credit  risk  applicable  to certain  types of
payers,  historical  trends,  and other  relevant  information.  We  review  our
allowance for doubtful accounts on an ongoing basis and may increase or decrease
such  allowances  from  time to  time,  including  in  those  instances  when we
determine  that the level of effort and cost of collection  of certain  accounts
receivable is unacceptable.

     The risks associated with third-party payers and uninsured  individuals and
the inability to monitor and manage accounts receivable  successfully could have
a material adverse effect on our business,  financial condition, cash flows, and
results of operations.  Our  collection  policies or our allowance for Medicare,
Medicaid and contractual  discounts and doubtful accounts  receivable may not be
adequate.

WE HAVE EXPERIENCED  MATERIAL  INCREASES IN THE COST OF OUR INSURANCE AND SURETY
PROGRAMS AND IN RELATED COLLATERALIZATION REQUIREMENTS.

     We have  experienced a substantial  rise in the costs  associated with both
our insurance and surety bonding  programs in comparison to prior years. We have
experienced  significant  increases both in the premiums we have had to pay, and
in the collateral or other advance funding required.  We also have increased our
deductible and self-insurance retentions under several coverages. Many counties,
municipalities,  and fire  districts also require us to provide a surety bond or
other  assurance of financial and performance  responsibility,  and the cost and
collateral  requirements  associated with obtaining such bonds have increased. A
significant  factor  is the  overall  hardening  of the  insurance,  surety  and
re-insurance  markets,  which has  resulted  in  demands  for  larger  premiums,
collateralization of payment obligations and increasingly  rigorous underwriting
requirements.  Our higher  costs also  result  from our claims  history and from
vendors'  past  perception  of our  financial  position  due to our current debt
structure and cash position,  as well as the qualified  opinion  formerly issued
with respect to our audited  financial  statements.  Sustained  and  substantial
annual  increases in premiums and  requirements  for  collateral  or  pre-funded
deductible  obligations  may have a  material  adverse  effect on our  business,
financial condition, cash flow and results of operations.

CLAIMS AGAINST US COULD EXCEED OUR INSURANCE COVERAGE.

     We are subject to a significant number of accident,  injury and malpractice
claims as a result of the nature of our business and the day-to-day operation of
our vehicle  fleet.  The  coverage  limits of our  policies may not be adequate.
Liabilities in excess of our insurance  coverage  could have a material  adverse
effect  on our  business,  financial  condition,  cash  flows,  and  results  of

                                       42
<PAGE>
operations.  Claims against us,  regardless of their merit or outcome,  also may
have an adverse effect on our reputation and business.

OUR RESERVES MAY PROVE INADEQUATE.

     Under our general  liability and employee medical insurance  programs,  and
under  our  workers'  compensation  programs  prior  to  May  1,  2002,  we  are
responsible for deductibles in varying amounts. Our insurance coverages in prior
years  generally did not include an aggregate  limitation on our  liability.  We
have  established  reserves for losses and loss adjustment  expenses under these
policies.  Our  reserves are  estimates  based on industry  data and  historical
experience, and include judgments of the effects that future economic and social
forces  are  likely to have on our  experience  with the type of risk  involved,
circumstances  surrounding  individual  claims  and  trends  that may affect the
probable  number  and nature of claims  arising  from  losses not yet  reported.
Consequently, loss reserves are inherently uncertain and are subject to a number
of highly  variable and difficult to predict  circumstances.  For these reasons,
there can be no assurance that our ultimate liability will not materially exceed
our reserves.  If our reserves  prove to be  inadequate,  we will be required to
increase our reserves with a corresponding reduction,  which may be material, to
our operating  results in the period in which the deficiency is  identified.  We
have engaged actuaries in recent years in order to verify the  reasonableness of
our reserve estimates.

RECENTLY ENACTED RULES MAY ADVERSELY AFFECT OUR REIMBURSEMENT RATES OF COVERAGE.

     On April 1, 2002,  the Medicare  Ambulance  Fee Schedule  Final Rule became
effective. The Final Rule categorizes seven levels of ground ambulance services,
ranging from basic life support to specialty care transport,  and two categories
of air  ambulance  services.  The base rate  conversion  factor for  services to
Medicare  patients was set at $170.54,  plus separate  mileage  payment based on
specified relative value units for each level of ambulance service.  Adjustments
also were included to recognize  differences  in relative  practice  costs among
geographic  areas,  and  higher  transportation  costs that may be  incurred  by
ambulance providers in rural areas with low population  density.  The Final Rule
requires ambulance  providers to accept the assigned  reimbursement rate as full
payment,  after  patients  have  submitted  their  deductible  and 20 percent of
Medicare's  fee for service.  In addition,  the Final Rule calls for a five-year
phase-in  period to allow time for providers to adjust to the new payment rates.
The fee schedule  will be phased in at  20-percent  increments  each year,  with
payments being made at 100 percent of the fee schedule in 2006 and thereafter.

     We believe the Medicare  Ambulance  Fee  Schedule  will cause a neutral net
impact on our medical  transportation  revenue at incremental  and full phase-in
periods, primarily due to the geographic diversity of our U.S. operations. These
rules could, however,  result in contract  renegotiations or other actions by us
to offset any negative  impact at the regional  level that could have a material
adverse effect on our business,  financial condition, cash flows, and results of
operations.  Changes in reimbursement  policies,  or other governmental  action,
together with the financial  challenges of some private,  third-party payers and
budget  pressures  on other  payer  sources  could  influence  the  timing  and,
potentially, the receipt of payments and reimbursements. A reduction in coverage
or  reimbursement  rates  by  third-party  payers,  or an  increase  in our cost
structure  relative to the rate increase in the Consumer  Price Index (CPI),  or
costs  incurred  to  implement  the  mandates of the fee  schedule  could have a
material adverse effect on our business,  financial  condition,  cash flows, and
results of operations.

CERTAIN STATE AND LOCAL GOVERNMENTS  REGULATE RATE STRUCTURES AND LIMIT RATES OF
RETURN.

     State or local government  regulations or administrative  policies regulate
rate  structures  in most states in which we conduct  ambulance  operations.  In
certain  service areas in which we are the exclusive  provider of services,  the
municipality  or fire district sets the rates for emergency  ambulance  services
pursuant to a master contract and  establishes  the rates for general  ambulance
services that we are permitted to charge. Rates in most service areas are set at
the same amounts for emergency and general ambulance services.  For example, the
State of Arizona  establishes a rate of return on sales we are permitted to earn
in  determining  the  ambulance  service  rates  we may  charge  in that  state.
Ambulance  services revenue generated in Arizona accounted for approximately 18%
of total  revenue for fiscal  2002 and  approximately  15% of total  revenue for
fiscal 2001. We may be unable to receive  ambulance  service rate increases on a
timely basis where rates are regulated or to establish or maintain  satisfactory
rate structures where rates are not regulated.

     Municipalities  and fire districts  negotiate the payments to be made to us
for  fire  protection  services  pursuant  to  master  contracts.  These  master
contracts are based on a budget and on level of effort or  performance  criteria

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desired by the  municipalities  and fire districts.  We could be unsuccessful in
negotiating or maintaining  profitable  contracts with  municipalities  and fire
districts.

NUMEROUS GOVERNMENTAL ENTITIES REGULATE OUR BUSINESS.

     Numerous  federal,  state,  local, and foreign laws and regulations  govern
various aspects of the business of ambulance  service and fire fighting  service
providers,  covering matters such as licensing,  rates, employee  certification,
environmental matters,  radio communications and other factors.  Certificates of
necessity may be required from state or local  governments to operate  ambulance
services in a  designated  service  area.  Master  contracts  from  governmental
authorities are subject to risks of cancellation or unenforceability as a result
of  budgetary  and other  factors and may subject us to certain  liabilities  or
restrictions  that  traditionally  have  applied  only to  governmental  bodies.
Federal, state, local, or foreign governments could:

     *    change existing laws or regulations,

     *    adopt  new  laws or  regulations  that  increase  our  cost  of  doing
          business,

     *    lower reimbursement levels,

     *    choose to provide services for themselves, or

     *    otherwise  adversely affect our business,  financial  condition,  cash
          flows, and results of operations.

     We could  encounter  difficulty in complying with all  applicable  laws and
regulations.

HEALTH CARE REFORMS AND COST CONTAINMENT MAY AFFECT OUR BUSINESS.

     Numerous  legislative  proposals have been  considered that would result in
major reforms in the U.S.  health care system.  We cannot predict which, if any,
health  care  reforms  may be  proposed  or enacted or the effect  that any such
legislation  would have on our business.  The Health  Insurance  Portability and
Accountability  Act of 1996  (HIPAA),  which  protects  the privacy of patients'
health  information  handled by health care providers and establishes  standards
for its electronic transmission, was enacted on August 21, 1996. The final rule,
which took effect on April 14, 2001,  requires  covered  entities to comply with
the final  rule's  provisions  by April 14,  2003,  and covers all  individually
identifiable health information used or disclosed by a covered entity. Our HIPAA
Subcommittee of the Corporate  Compliance  Committee is addressing the impact of
HIPAA and  considering  changes to or  enactment of policies  and/or  procedures
which may need to be  implemented  to comply  under the final rule.  Because the
impact of HIPAA on the health care  industry  is not known at this time,  we may
incur significant costs associated with implementation and continued  compliance
with HIPAA or further  legislation  which may have a material  adverse effect on
our business, financial condition, cash flows, or results of operations.

     In  addition,  managed  care  providers  are  focusing on cost  containment
measures while seeking to provide the most  appropriate  level of service at the
most appropriate  treatment facility.  Changing industry practices could have an
adverse effect on our business,  financial condition, cash flows, and results of
operations.

WE MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET.

     On July 30, 2001,  the Nasdaq Stock Market  notified us that we were not in
compliance with a Nasdaq SmallCap maintenance  standard.  This standard requires
that we maintain at least a $1.00 minimum bid price. Under the Nasdaq notice, we
had until October 29, 2001 to comply with the maintenance requirement.  In order
to  comply,  our  common  stock  had to  trade  above  $1.00  for at  least  ten
consecutive trading days prior to such date.

     On September 27, 2001,  Nasdaq  announced,  effective  immediately,  it was
implementing an across-the-board  moratorium on the minimum bid and public float
requirements for continued listing on Nasdaq. In particular, companies that were
under review for failure to maintain  such  requirements,  as we were,  had been
removed  from the  compliance  process  with respect to the bid price and public
float  requirements.  The suspension of these  requirements  remained  effective
until January 2, 2002, and no deficiencies accrued during the suspension period.

     On  February  26,  2002,  we  announced   that  the  company  had  received
notification  from  Nasdaq  citing  our  inability  to  meet  continued  listing
standards for net tangible assets,  stockholders' equity, market capitalization,
or net income, as set forth in Marketplace Rule  4310(c)(2)(B).  We subsequently

                                       44
<PAGE>
submitted our request for a Nasdaq  Qualifications Panel hearing to consider our
continued  listing.  A  hearing  was set for  April 4,  2002,  at which  time we
presented  our case for  continued  listing.  On April  17,  2002,  the  company
announced  that the Panel had  determined  our  securities  would continue to be
listed  under the ticker  symbol  "RURLC" on the Nasdaq  SmallCap  Market via an
exception   to  the  bid  price  and  net   income/stockholders'   equity/market
capitalization requirements.

     In its decision to grant an exception,  the Panel  determined that that our
securities would continue to be listed on the Nasdaq SmallCap Market pursuant to
the following exceptions:

     Specifically,  we were granted an exception to demonstrate  full compliance
with the $500,000 net income  standard for the fiscal year ending June 30, 2002,
excluding  extraordinary or non-recurring items. As disclosed in this filing, we
reported net income of $3.9 million before the cumulative  effect of a change in
accounting principle.

     Nasdaq also required that we evidence  year-to-date  net income of at least
$500,000 at the close of its fiscal third  quarter  ended March 31, 2002. On May
17, 2002, we were notified by Nasdaq that we had evidenced  compliance  with the
necessary requirement.

     Thirdly,  Nasdaq  required  that we evidence on or before August 13, 2002 a
closing  bid price of at least  $1.00 per share and  maintain  that  price for a
minimum of 10 consecutive  trading days. On August 22, 2002, we were notified by
Nasdaq that we had met this requirement for continued  listing and the exception
would be continued through September 30, 2002.

     Upon the filing of this Form 10-K for the fiscal year ended June 30,  2002,
Nasdaq  will  review  our  financial  statements  in  order  to  determine  full
compliance  with  the  exception.  Nasdaq  has  informed  us  that  the  Listing
Qualifications  Panel  reserves  the right to modify or extend the terms of this
exception.  In order to fully comply with the terms of this  exception,  we must
demonstrate compliance with all requirements for continued listing on The Nasdaq
SmallCap  Market  as  well as the  ability  to  sustain  compliance  with  those
requirements over the long term. We believe we will evidence compliance with the
requirements  as set forth by Nasdaq  and  therefore  will  return to  continued
listing on The Nasdaq SmallCap Market.  In the event we are unable to do so, its
securities will be delisted from The Nasdaq Stock Market.

WE DEPEND ON CERTAIN BUSINESS RELATIONSHIPS.

     We depend to a great extent on certain  contracts  with  municipalities  or
fire districts to provide 911 emergency  ambulance  services and fire protection
services.  Our six largest contracts  accounted for approximately 18.6% of total
revenue for the fiscal year ended June 30, 2002 and approximately 16.1% of total
revenue  for the  fiscal  year  ended  June 30,  2001.  One of  these  contracts
accounted for approximately 4.2% of total revenue for the fiscal year ended June
30, 2002 and approximately 4.0% of total revenue for the fiscal year ended 2001.
Contracts  with  municipalities  or fire  districts  may have certain  budgetary
approval  constraints.  Failure to allocate  funds for a contract may  adversely
affect our ability to continue to perform services without suffering significant
losses.  The loss or  cancellation  of several of these  contracts  could have a
material  adverse effect on our business,  financial  condition,  cash flow, and
results of  operations.  We may not be  successful  in  retaining  our  existing
contracts or in obtaining new contracts for emergency  ambulance services or for
fire protection services.

     Our contracts with  municipalities and fire districts and with managed care
organizations  and health care  providers  are short term or  open-ended  or for
periods  ranging  from two years to five  years.  During  such  periods,  we may
determine  that a  contract  is no  longer  favorable  and may seek to modify or
terminate  the  contract.  When making  such a  determination,  we may  consider
factors,  such as weaker than expected  transport  volume,  geographical  issues
adversely  affecting  response  times,  and  delays in  implementing  technology
upgrades. We face certain risks in attempting to terminate unfavorable contracts
prior to their expiration  because of the possibility of forfeiting  performance
bonds and the potential adverse political and public relations consequences. Our
inability  to  terminate or amend  unfavorable  contracts  could have a material
adverse effect on our business,  financial condition, cash flows, and results of
operations. We also face the risk that areas in which we provide fire protection
services through subscription arrangements with residents and businesses will be
converted to tax-supported fire districts or annexed by municipalities.

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<PAGE>
WE  FACE  RISKS  ASSOCIATED  WITH  OUR  PRIOR  RAPID  GROWTH,  INTEGRATION,  AND
ACQUISITIONS.

     We must integrate and successfully  operate the ambulance service providers
that we have  acquired.  The  process  of  integrating  management,  operations,
facilities,  and  accounting  and  billing  and  collection  systems  and  other
information systems requires continued  investment of time and resources and can
involve  difficulties,  which  could  have  a  material  adverse  effect  on our
business, financial condition, cash flows, and results of operations. Unforeseen
liabilities  and other issues also could arise in connection  with the operation
of businesses that we have previously acquired or may acquire in the future. For
example,  we recently  became  aware of, and have taken  corrective  action with
respect to,  various  issues  arising  primarily  from the transition to us from
various acquired operations of Federal Communications  Commission (FCC) licenses
for public safety and private  wireless radio  frequencies  used in the ordinary
course of our business.  While we do not currently  anticipate  that action with
respect to these issues by the FCC's enforcement  bureau will result in material
monetary fines or license forfeitures,  there can be no assurance that this will
be the case. Our  acquisition  agreements  contain  purchase price  adjustments,
rights of set-off, indemnification, and other remedies in the event that certain
unforeseen  liabilities  or  issues  arise in  connection  with an  acquisition.
However, these purchase price adjustments,  rights of set-off,  indemnification,
and other  remedies  expire and may not be  sufficient  to  compensate us in the
event that any liabilities or other issues arise.

WE FACE ADDITIONAL RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.

     Due to the deteriorating  economic conditions and continued  devaluation of
the local currency, we have reviewed our strategic  alternatives with respect to
the  continuation  of  operations  in Latin  America,  including  Argentina  and
Bolivia.  We have determined that we would benefit from focusing on our domestic
operations.  Effective September 27, 2002, we sold our Latin American operations
to local  management.  While the  accounting for this  transaction  has not been
finalized,  we do not expect  this  transaction  to have a negative  impact.  We
believe  that both the  structure  of our  pre-sale  operations  and of the sale
transaction  itself shield us from  liabilities  associated  with past or future
activities of our former Latin American  operations.  However, due to the nature
of  local  laws and  regulatory  requirements  and the  uncertain  economic  and
political environment, particularly in Argentina, there can be no assurance that
we will not be required to defend against future  claims.  Unanticipated  claims
successfully  asserted  against us could have an adverse effect on our business,
financial condition, cash flows, and results of operations.

WE ARE IN A HIGHLY COMPETITIVE INDUSTRY.

     The ambulance service industry is highly competitive. Ambulance and general
transport  service  providers  compete  primarily  on the  basis of  quality  of
service,  performance, and cost. In order to compete successfully,  we must make
continuing  investments  in our fleet,  facilities,  and operating  systems.  We
believe that counties, fire districts, and municipalities consider the following
factors in awarding a contract:

     *    quality of medical care,

     *    historical response time performance,

     *    customer service,

     *    financial stability, and

     *    personnel policies and practices.

     We  currently  compete  with the  following  entities to provide  ambulance
services:

     *    governmental entities (including fire districts),

     *    hospitals,

     *    other national ambulance service providers,

     *    large regional ambulance service providers, and

     *    local and volunteer private providers.

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<PAGE>
     Municipalities,   fire  districts,   and  health  care  organizations  that
currently  contract for  ambulance  services  could choose to provide  ambulance
services directly in the future. We are experiencing  increased competition from
fire departments in providing emergency  ambulance service.  Some of our current
competitors  and certain  potential  competitors  have or have access to greater
capital and other resources than us.

     Tax-supported  fire districts,  municipal fire  departments,  and volunteer
fire departments  represent the principal  providers of fire protection services
for residential and commercial  properties.  Private providers  represent only a
small portion of the total fire protection market and generally provide services
where a tax-supported  municipality or fire district has decided to contract for
these  services  or has  not  assumed  the  financial  responsibility  for  fire
protection.  In these situations, we provide services for a municipality or fire
district on a contract  basis or provide fire  protection  services  directly to
residences  and  businesses  who subscribe for this service.  We cannot  provide
assurance that:

     *    we will be able continue to maintain current contracts or subscription
          or to obtain  additional fire protection  business on a contractual or
          subscription basis;

     *    fire  districts  or  municipalities  will not choose to  provide  fire
          protection services directly in the future; or

     *    areas in which we provide services through  subscriptions  will not be
          converted   to   tax-supported    fire   districts   or   annexed   by
          municipalities.

WE DEPEND ON OUR MANAGEMENT AND OTHER KEY PERSONNEL.

     Our success  depends upon our ability to recruit and retain key  personnel.
We could  experience  difficulty  in retaining  our current key  personnel or in
attracting and retaining necessary additional key personnel. Low unemployment in
certain market areas currently makes the recruiting,  training, and retention of
full-time and part-time personnel more difficult and costly,  including the cost
of overtime wages.  Our internal growth will further  increase the demand on our
resources  and  require the  addition of new  personnel.  We have  entered  into
employment  agreements with certain of our executive  officers and certain other
key  personnel.  Failure  to retain or  replace  our key  personnel  may have an
adverse effect on our business.

IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

     Certain  provisions  of our  certificate  of  incorporation,  stockholders'
rights plan and Delaware law could make it more  difficult  for a third party to
acquire control of our company,  even if a change in control might be beneficial
to stockholders.  This could discourage  potential  takeover  attempts and could
adversely affect the market price of our common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     Our primary  exposure to market risk consists of changes in interest  rates
on our  borrowing  activities.  We face the  possibility  of increased  interest
expense in connection  with our amended credit  facility which bears interest at
LIBOR plus 7.0%.  A 1% increase in the prime rate would  increase  our  interest
expense on an annual basis by approximately  $1.5 million.  The remainder of our
debt is primarily at fixed interest rates. We continually  monitor this risk and
review the  potential  benefits of entering into hedging  transactions,  such as
interest  rate swap  agreements,  to mitigate  the  exposure  to  interest  rate
fluctuations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our  Consolidated  Financial  Statements  as of June  30,  2002 and for the
fiscal  year  then  ended   together  with  related  notes  and  the  report  of
PricewaterhouseCoopers LLP are set forth herein.

     Our Consolidated  Financial Statements as of June 30, 2000 and 2001 and for
each of the three years in the period ended June 30, 2001 were audited by Arthur
Andersen  LLP  (Andersen)  who  has  ceased  operations.  A copy  of  Andersen's
previously issued report on such financial  statements is set forth herein. Such
report has not been reissued by Andersen.

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<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Rural/Metro Corporation:

In our opinion, the accompanying  consolidated balance sheet as of June 30, 2002
and  the  related   consolidated   statements  of  operations,   of  changes  in
stockholders'  equity  (deficit),  and of  cash  flows  present  fairly,  in all
material  respects,  the financial  position of Rural/Metro  Corporation and its
subsidiaries (the Company) at June 30, 2002, and the results of their operations
and their  cash  flows for the year then  ended in  conformity  with  accounting
principles  generally accepted in the United States of America.  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 audit of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable  basis  for  our  opinion.  The  Company's   consolidated   financial
statements  as of June 30,  2001,  and for each of the two  years in the  period
ended June 30, 2001,  prior to the revisions  described in Notes 5, 11 and 16 to
the  consolidated  financial  statements,  were  audited  by  other  independent
accountants who have ceased operations.  Those independent accountants expressed
an unqualified opinion on those financial statements and included an explanatory
paragraph  describing  matters that raised substantial doubt about the Company's
ability to continue as a going concern in their report dated October 12, 2001.

As discussed in Note 5 to the  consolidated  financial  statements,  the Company
changed its method of accounting for goodwill effective July 1, 2001.

As discussed above, the Company's  consolidated  financial statements as of June
30, 2001, and for each of the two years in the period ended June 30, 2001,  were
audited  by  other  independent  accountants  who  have  ceased  operations.  As
described in Note 5, those financial statements have been revised to include the
transitional disclosures required by Statement of Financial Accounting Standards
No.  142,  "Goodwill  and Other  Intangible  Assets",  which was  adopted by the
Company as of July 1, 2001. We audited the transitional disclosures for 2001 and
2000 included in Note 5. In our opinion,  the transitional  disclosures for 2001
and 2000 in Note 5 are  appropriate.  However,  we were not  engaged  to  audit,
review, or apply any procedures to the 2001 or 2000 financial  statements of the
Company other than with respect to such disclosures and, accordingly,  we do not
express an opinion or any other form of assurance on the 2001 or 2000  financial
statements taken as a whole.

                                        /s/ PricewaterhouseCoopers LLP

Phoenix, Arizona
September 30, 2002

                                       48
<PAGE>
THE FOLLOWING REPORT IS A COPY OF A REPORT  PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP  (ANDERSEN).  THIS REPORT HAS NOT BEEN REISSUED BY ANDERSEN AND ANDERSEN DID
NOT CONSENT TO THE  INCORPORATION  BY  REFERENCE  OF THIS REPORT (AS INCLUDED IN
THIS FORM 10-K/A) INTO ANY OF THE COMPANY'S REGISTRATION STATEMENTS.

AS DISCUSSED IN NOTE 5, THE COMPANY HAS REVISED ITS FINANCIAL STATEMENTS FOR THE
YEARS  ENDED JUNE 30,  2001 AND 2000 TO  INCLUDE  THE  TRANSITIONAL  DISCLOSURES
REQUIRED BY STATEMENT OF FINANCIAL  ACCOUNTING  STANDARDS NO. 142,  GOODWILL AND
INTANGIBLE  ASSETS.  THE ANDERSEN  REPORT DOES NOT EXTEND TO THESE CHANGES.  THE
REVISIONS  TO  THE  2001  AND  2000  FINANCIAL   STATEMENTS   RELATED  TO  THESE
TRANSITIONAL  DISCLOSURES  WERE  REPORTED ON BY  PRICEWATERHOUSECOOPERS  LLP, AS
STATED IN THEIR REPORT APPEARING HEREIN.

ADDITIONALLY,  AS DISCUSSED IN NOTES 11 AND 16, THE COMPANY HAS REVISED ITS 2001
FINANCIAL  STATEMENTS  TO REFLECT  CHANGES IN  DISCLOSURES  RELATING  TO ITS NET
DEFERRED TAX LIABILITY AND HAS REVISED ITS 2001 AND 2000 FINANCIAL STATEMENTS TO
REFLECT CHANGES IN DISCLOSURES RELATING TO ITS SEGMENT INFORMATION. THE ANDERSEN
REPORT  DOES NOT  EXTEND  TO  THESE  CHANGES  TO THE  2001  AND  2000  FINANCIAL
STATEMENTS,  AND  THESE  REVISIONS  HAVE NOT  BEEN  AUDITED  BY ANY  INDEPENDENT
ACCOUNTANTS.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Rural/Metro Corporation:

     We have audited the accompanying consolidated balance sheets of RURAL/METRO
CORPORATION  (a  Delaware  corporation)  and  subsidiaries  (collectively,   the
Company) as of June 30, 2001 and 2000,* and the related consolidated  statements
of  operations,  changes in  stockholders'  equity  (deficit),  cash flows,  and
comprehensive  income  (loss)* for each of the three  years in the period  ended
June  30,  2001*.  These  consolidated  financial  statements  and the  schedule
referred  to below  are the  responsibility  of the  Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide 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 Rural/Metro  Corporation and
subsidiaries as of June 30, 2001 and 2000,* and the results of their  operations
and their  cash flows for each of the three  years in the period  ended June 30,
2001*, in conformity with accounting principles generally accepted in the United
States.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in Note 1* to the
financial  statements,  the  Company  is  operating  under a waiver  of  certain
financial  covenants   contained  in  its  revolving  credit  facility,   has  a
significant working capital deficiency,  cannot borrow additional funds from its
revolving credit facility,  and incurred  significant losses for the years ended
June 30, 2000 and 2001. These as well as other matters raise  substantial  doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these matters are also described in Note 1*. The financial  statements do not
include any adjustments  relating to the  recoverability  and  classification of
asset carrying  amounts or the amount and  classification  of  liabilities  that
might result should the Company be unable to continue as a going concern.

     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index of
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audits of the basic  financial  statements  and, in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.**

                                        /s/ ARTHUR ANDERSEN LLP

Phoenix, Arizona
October 12, 2001

                                       49
<PAGE>
     * The  Company's  consolidated  balance  sheet as of June 30,  2000 and the
consolidated   statements  of  operations,   changes  in  stockholder's   equity
(deficit),  cash flows and  comprehensive  income (loss) for the year ended June
30, 1999 are not included in this Form  10-K/A.  Additionally,  the  information
contained in the consolidated  statement of comprehensive  income (loss) for the
years  ended  June 30,  2001 and 2000 has been  integrated  in the  consolidated
statement of stockholders' equity (deficit) for those years and the consolidated
statement  of  comprehensive  income  (loss)  has  been  deleted.  Finally,  the
discussion of the Company's revolving credit facility is included in Note 10.

     ** The  schedule to which this  paragraph  refers has not been  included in
this Form 10-K/A because the required  information  was already  included in the
Notes to the Consolidated Financial Statements.

                                       50
<PAGE>
                             RURAL/METRO CORPORATION

                           CONSOLIDATED BALANCE SHEET
                             JUNE 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                         2002           2001
                                                                                       ---------      ---------
                                                                                            (IN THOUSANDS)
<S>                                                                                    <C>            <C>
ASSETS
CURRENT ASSETS
Cash............................................................................       $   9,828      $   8,699
Accounts receivable, net of allowance for Medicare, Medicaid and contractual
discounts and doubtful accounts of $32,668 and $65,229 respectively.............          99,115        103,260
Inventories.....................................................................          12,220         13,173
Prepaid expenses and other......................................................           9,597          6,753
                                                                                       ---------      ---------
          Total current assets..................................................         130,760        131,885
PROPERTY AND EQUIPMENT, net.....................................................          48,532         57,999
GOODWILL........................................................................          41,244         90,757
OTHER ASSETS....................................................................          16,902         17,893
                                                                                       ---------      ---------
                                                                                       $ 237,438      $ 298,534
                                                                                       =========      =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable................................................................       $  11,961      $  12,915
Accrued liabilities.............................................................          73,719         95,390
Deferred subscription fees......................................................          15,409         14,707
Current portion of long-term debt...............................................           1,633        294,439
                                                                                       ---------      ---------
          Total current liabilities.............................................         102,722        417,451
LONG-TERM DEBT, net of current portion..........................................         298,529          1,286
OTHER LIABILITIES...............................................................             477            994
DEFERRED INCOME TAXES...........................................................             650            950
                                                                                       ---------      ---------
          Total liabilities.....................................................         402,378        420,681
                                                                                       ---------      ---------
MINORITY INTERESTS..............................................................             379          8,379
                                                                                       ---------      ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued
  at June 30, 2002 and 2001.....................................................              --             --
Common stock, $.01 par value, 23,000,000 shares authorized, 15,651,095
  and 14,899,920 shares outstanding at June 30, 2002 and 2001,
  respectively..................................................................             159            152
Additional paid-in capital......................................................         138,470        137,948
Accumulated deficit.............................................................        (313,025)      (267,401)
Accumulated other comprehensive income (loss)...................................          10,316             14
Treasury stock, at cost, 149,456 shares at June 30, 2002 and 2001...............          (1,239)        (1,239)
                                                                                       ---------      ---------
          Total stockholders' equity (deficit)..................................        (165,319)      (130,526)
                                                                                       ---------      ---------
                                                                                       $ 237,438      $ 298,534
                                                                                       =========      =========
</TABLE>

                             See accompanying notes

                                       51
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS
                FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                           2002         2001         2000
                                                                        ---------    ---------    ---------
                                                                      (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                                     <C>          <C>          <C>
NET REVENUE .........................................................   $ 497,038    $ 504,316    $ 570,074
                                                                        ---------    ---------    ---------
OPERATING EXPENSES
  Payroll and employee benefits .....................................     287,307      301,055      323,285
  Provision for doubtful accounts ...................................      69,900      102,470       95,623
  Provision for doubtful accounts-- change in estimate ..............          --           --       65,000
  Depreciation ......................................................      15,155       21,809       25,009
  Amortization of intangibles .......................................       1,055        7,352        8,687
  Other operating expenses ..........................................      97,640      142,009      127,743
  Asset impairment charges ..........................................          --       94,353           --
  Loss on disposition of clinic operations ..........................          --        9,374           --
  Contract termination costs and related asset impairment charges ...        (107)       9,256           --
  Restructuring charge and other ....................................        (718)       9,091       34,047
                                                                        ---------    ---------    ---------
        Total operating expenses ....................................     470,232      696,769      679,394
                                                                        ---------    ---------    ---------
OPERATING INCOME (LOSS) .............................................      26,806     (192,453)    (109,320)
Interest expense, net ...............................................     (24,976)     (30,001)     (25,939)
Other income (expense) net ..........................................           9       (2,402)       2,890
                                                                        ---------    ---------    ---------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
LOSS AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ................................................       1,839     (224,856)    (132,369)
INCOME TAX (PROVISION) BENEFIT ......................................       2,050       (1,875)      32,837
                                                                        ---------    ---------    ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .................       3,889     (226,731)     (99,532)
EXTRAORDINARY LOSS ON EXPROPRIATION OF CANADIAN
AMBULANCE SERVICE LICENSES (NET OF TAX OF $0) .......................          --           --       (1,200)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(NET OF TAX OF $0 IN 2002 AND BENEFIT OF $392 IN 2001) ..............     (49,513)          --         (541)
                                                                        ---------    ---------    ---------
NET INCOME (LOSS) ...................................................   $ (45,624)   $(226,731)   $(101,273)
                                                                        =========    =========    =========
INCOME (LOSS) PER SHARE
  Basic --
    Income (loss) before extraordinary loss and cumulative effect
      of change in accounting principle .............................   $    0.26    $  (15.38)   $   (6.82)
    Extraordinary loss on expropriation of Canadian ambulance
      service licenses ..............................................          --           --        (0.08)
    Cumulative effect of change in accounting principle .............       (3.26)          --        (0.04)
                                                                        ---------    ---------    ---------
Net income (loss) ...................................................   $   (3.00)   $  (15.38)   $   (6.94)
                                                                        =========    =========    =========
  Diluted --
    Income (loss) before extraordinary loss and cumulative effect
      of change in accounting principle .............................   $    0.25    $  (15.38)   $   (6.82)
    Extraordinary loss on expropriation of Canadian ambulance
      service licenses ..............................................          --           --        (0.08)
    Cumulative effect of change in accounting principle .............       (3.14)          --        (0.04)
                                                                        ---------    ---------    ---------
Net income (loss) ...................................................   $   (2.89)   $  (15.38)   $   (6.94)
                                                                        =========    =========    =========
AVERAGE NUMBER OF SHARES OUTSTANDING -- BASIC .......................      15,190       14,744       14,592
                                                                        =========    =========    =========
AVERAGE NUMBER OF SHARES OUTSTANDING -- DILUTED .....................      15,773       14,744       14,592
                                                                        =========    =========    =========
</TABLE>

                             See accompanying notes

                                       52
<PAGE>
                             RURAL/METRO CORPORATION

       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                RETAINED     ACCUMULATED
                                                                  ADDITIONAL    EARNINGS        OTHER
                                           PREFERRED    COMMON     PAID-IN    (ACCUMULATED  COMPREHENSIVE    TREASURY
                                             STOCK      STOCK      CAPITAL      DEFICIT)    INCOME (LOSS)      STOCK        TOTAL
                                            -------   ---------   ---------    ---------    -------------    ---------    ---------
                                                                            (IN THOUSANDS)
<S>                                         <C>       <C>         <C>          <C>            <C>            <C>          <C>
BALANCE, June 30, 1999 ..................   $    --   $     148   $ 137,792    $  60,603      $    (465)     $  (1,239)   $ 196,839
  Issuance of 121,828 shares of
    common stock ........................        --           1         654           --             --             --          655
  Cancellation of 25,775 shares
    previously issued in connection
    acquisitions ........................        --          --        (843)          --             --             --         (843)
  Comprehensive loss:
    Net loss ............................        --          --          --     (101,273)            --             --     (101,273)
    Cumulative translation adjustments ..                    --          --           --            213             --          213
                                            -------   ---------   ---------    ---------      ---------      ---------    ---------
    Comprehensive loss ..................        --          --          --     (101,273)           213             --     (101,060)
                                            -------   ---------   ---------    ---------      ---------      ---------    ---------

BALANCE, June 30, 2000 ..................        --         149     137,603      (40,670)          (252)        (1,239)      95,591
  Issuance of 273,584 shares of
   common stock .........................        --           3         345           --             --             --          348
  Comprehensive loss:
    Net loss ............................        --          --          --     (226,731)            --             --     (226,731)
    Cumulative translation adjustments ..        --          --          --           --            266             --          266
                                            -------   ---------   ---------    ---------      ---------      ---------    ---------
    Comprehensive loss ..................        --          --          --     (226,731)           266             --     (226,465)
                                            -------   ---------   ---------    ---------      ---------      ---------    ---------

BALANCE, June 30, 2001 ..................        --         152     137,948     (267,401)            14         (1,239)    (130,526)
  Issuance of 751,175 shares of
    common stock ........................        --           7         449           --             --             --          456
  Fair value of options issued
    to non-employee .....................        --          --          73           --             --             --           73
  Comprehensive loss:
    Net loss ............................        --          --          --      (45,624)            --             --      (45,624)
    Cumulative translation adjustments ..        --          --          --           --         10,302             --       10,302
                                            -------   ---------   ---------    ---------      ---------      ---------    ---------
    Comprehensive loss ..................        --          --          --      (45,624)        10,302             --      (35,322)
                                            -------   ---------   ---------    ---------      ---------      ---------    ---------

BALANCE, June 30, 2002 ..................   $    --   $     159   $ 138,470    $(313,025)     $  10,316      $  (1,239)   $(165,319)
                                            =======   =========   =========    =========      =========      =========    =========
</TABLE>

                             See accompanying notes

                                       53
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                    2002         2001         2000
                                                                                  ---------    ---------    ---------
                                                                                            (IN THOUSANDS)
<S>                                                                               <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................................................   $ (45,624)   $(226,731)   $(101,273)
Adjustments to reconcile net loss to cash provided by (used in) operating
  activities --
  Non-cash portion of restructuring charge and other ..........................          --        4,092       28,873
  Non-cash portion of contract termination charges ............................          --        8,086           --
  Asset impairment charges ....................................................          --       94,353           --
  Loss on disposition of clinic operations ....................................          --        9,374           --
  Extraordinary loss on expropriation of Canadian ambulance service licenses ..          --           --        1,200
  Cumulative effect of change in accounting principle .........................      49,513           --          541
  Depreciation and amortization ...............................................      16,210       29,161       33,696
  Gain on sale of property and equipment ......................................        (285)        (427)        (184)
  Provision for doubtful accounts .............................................      69,900      102,470      160,623
  Deferred income taxes .......................................................        (300)         950       (9,438)
  Equity earnings net of distributions received ...............................        (249)         118          587
  Undistributed earnings (losses) of minority stockholders ....................          (9)      (1,026)      (2,890)
  Amortization of debt discount ...............................................          26           26           26
  Non-cash charge related to joint venture ....................................          --        4,045           --
  Non-cash stock compensation expense .........................................          73           --           --
Change in assets and liabilities--
  Increase in accounts receivable .............................................     (67,322)     (62,099)    (119,219)
  (Increase) decrease in inventories ..........................................         948        5,811       (3,370)
  (Increase) decrease in prepaid expenses and other ...........................      (3,018)       1,072        2,215
  (Increase) decrease in other assets .........................................      (1,895)       2,463         (460)
  Increase (decrease) in accounts payable .....................................       1,337       (2,654)      (1,669)
  Increase (decrease) in accrued liabilities and other liabilities ............     (10,679)      39,057         (889)
  Increase (decrease) in deferred subscription fees ...........................         702         (282)          80
                                                                                  ---------    ---------    ---------
      Net cash provided by (used in) operating activities .....................       9,328        7,859      (11,551)
                                                                                  ---------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ..........................................................      (6,854)      (5,774)     (17,131)
Proceeds from the sale of property and equipment ..............................       1,022        1,969        1,300
Proceeds from the expropriation of Canadian ambulance services licenses .......          --           --        2,191
                                                                                  ---------    ---------    ---------
      Net cash used in investing activities ...................................      (5,832)      (3,805)     (13,640)
                                                                                  ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Borrowings (repayments) on revolving credit facility ......................      (1,263)      (3,765)      33,307
Repayment of debt and capital lease obligations ...............................      (1,862)      (2,773)      (5,704)
Borrowings under capital lease obligations ....................................          --          283           --
Issuance of common stock ......................................................         456          348          655
                                                                                  ---------    ---------    ---------
      Net cash provided by (used in) financing activities .....................      (2,669)      (5,907)      28,258
                                                                                  ---------    ---------    ---------

EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH ..............................         302          265           40
                                                                                  ---------    ---------    ---------
INCREASE (DECREASE) IN CASH ...................................................       1,129       (1,588)       3,107
CASH, beginning of year .......................................................       8,699       10,287        7,180
                                                                                  ---------    ---------    ---------
CASH, end of year .............................................................   $   9,828    $   8,699    $  10,287
                                                                                  =========    =========    =========
</TABLE>

                             See accompanying notes

                                       54
<PAGE>
                             RURAL/METRO CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF BUSINESS AND OPERATIONS

     Rural/Metro  Corporation,  a  Delaware  corporation,  and its  subsidiaries
(collectively,   the  Company)  is  a  diversified  emergency  services  company
providing medical transportation,  fire protection and other related services in
26 states and the  District  of  Columbia.  In the United  States,  the  Company
provides 911 emergency and non-emergency  ambulance services to patients on both
a  fee-for-service  basis and a  non-refundable  subscription  fee  basis.  Fire
protection  services are provided either under contracts with  municipalities or
fire  districts,  or on a  subscription  fee basis to  individual  homeowners or
commercial  property  owners.  Through  September 27, 2002, the Company provided
urgent  home  medical  care  and  ambulance  services  under  capitated  service
arrangements in Latin America.  As discussed in Note 17, the Company disposed of
its Latin  American  operations  in a sale to local  management on September 27,
2002.

     USE OF ESTIMATES

     The  preparation  of financial  statements  in  accordance  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of revenue and expenses during the
reporting  period.  Significant  estimates  have  been  used  by  management  in
conjunction  with the  measurement  of the allowance for Medicare,  Medicaid and
contractual  discounts  and  doubtful  accounts,  the  valuation  allowance  for
deferred tax assets, workers' compensation and general liability claim reserves,
fair values of reporting units for purposes of goodwill  impairment  testing and
future cash flows associated with long-lived assets. Actual results could differ
from these estimates.

     PRINCIPLES OF CONSOLIDATION

     The accompanying  Consolidated Financial Statements include the accounts of
the Company, its wholly-owned subsidiaries and a majority-owned subsidiary which
it controls.  All material  intercompany  accounts  and  transactions  have been
eliminated.  The  Company's 50% interest in a  public/private  alliance with the
City  of San  Diego  is  accounted  for on the  equity  method.  Investments  in
companies that represent less than 20% of the related voting stock are accounted
for on the cost basis.

     REVENUE RECOGNITION

     Medical  transportation and related services revenue includes 911 emergency
and non-emergency ambulance and alternative  transportation service fees as well
as municipal subsidies and subscription fees. Domestic ambulance and alternative
transportation  service  fees are  recognized  as services  are provided and are
recorded net of estimated  Medicare,  Medicaid and other contractual  discounts.
Ambulance  subscription  fees,  which are  generally  received in  advance,  are
deferred and  recognized  on a pro rata basis over the term of the  subscription
agreement, which is generally one year.

     Revenue  generated  under fire protection  service  contracts is recognized
over the life of the contract.  Subscription  fees, which are generally received
in advance, are deferred and recognized on a pro rata basis over the term of the
subscription  agreement,  which is generally one year.  Other revenue  primarily
consists of dispatch, fleet, billing, training and home health care service fees
which are recognized when the services are provided.

     An allowance for Medicare,  Medicaid and  contractual  discounts as well as
for doubtful  accounts is based on  historical  collection  trends,  credit risk
assessments   applicable  to  certain   types  of  payers  and  other   relevant
information.  A summary of activity in the  Company's  allowance  for  Medicare,
Medicaid and contractual discounts and doubtful accounts during the fiscal years
ended June 30, 2002, 2001 and 2000 is as follows:

                                       55
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                                                      JUNE 30,
                                        -----------------------------------
                                          2002         2001         2000
                                        ---------    ---------    ---------
                                                  (IN THOUSANDS)
     Balance at beginning of year       $  65,229    $  87,752    $  43,392
     Provision for Medicare, Medicaid
        and contractual discounts         134,039      135,435      102,880
     Provision for doubtful accounts       69,900      102,470      160,623
     Write-offs and other adjustments    (236,500)    (260,428)    (219,143)
                                        ---------    ---------    ---------
     Balance at end of year             $  32,668    $  65,229    $  87,752
                                        =========    =========    =========

     The  provision  for  doubtful  accounts in fiscal 2000  included  the $65.0
million charge  relating to a change in the  methodology  used by the Company in
determining  its  allowance for doubtful  accounts as the Company  experienced a
decrease in  collections  in service  areas that were closed or downsized due to
the Company's  lack of physical  presence in the service area.  The Company also
recorded  charges in fiscal 2000 for  uncollectible  accounts  in those  service
areas that were  identified  for  closure  or  downsizing  during the year.  The
provision  for doubtful  accounts in fiscal 2001  included an  additional  $26.2
million  relating  to the  determination  of the  ultimate  uncollectibility  of
accounts  relating to service  areas  identified  for closure or  downsizing  in
fiscal 2000 as well as for other collectibility issues.

     INVENTORIES

     Inventories,  consisting  primarily of ambulance  and fleet  supplies,  are
stated at the lower of cost, on a first-in, first-out basis, or market.

     PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost, net of accumulated  depreciation,
and is  depreciated  over the  estimated  useful  lives using the  straight-line
method.  Equipment  and  vehicles  are  depreciated  over three to ten years and
buildings are depreciated  over fifteen to thirty years.  Property and equipment
held  under  capital  leases is stated at the  present  value of  minimum  lease
payments, net of accumulated  amortization.  These assets are amortized over the
shorter of the lease term or the estimated useful life of the underlying  assets
using  the   straight-line   method.   Major  additions  and   improvements  are
capitalized;  maintenance  and  repairs  which do not  improve or  significantly
extend the life of assets are expensed as incurred.

     IMPAIRMENT OF LONG-LIVED ASSETS

     The Company reviews its long-lived assets for impairment whenever events or
changes in  circumstances  indicate that the related carrying amounts may not be
recoverable,  by comparing  the carrying  amount of such assets to the estimated
undiscounted  future  cash  flows  associated  with  them.  In cases  where  the
estimated  undiscounted cash flows are less than the related carrying amount, an
impairment  loss is  recognized  for the  amount  by which the  carrying  amount
exceeds the fair value of the assets.  The fair value is determined based on the
present value of estimated future cash flows using a discount rate  commensurate
with the risks involved.

     INCOME TAXES

     Income taxes are accounted for using the asset and liability method.  Under
this method,  deferred  income tax assets and liabilities are recognized for the
future tax  consequences  attributable  to  temporary  differences  between  the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective  tax basis.  Deferred  income tax assets and  liabilities  are
measured  using  enacted tax rates  expected  to apply to taxable  income in the
years in which these  temporary  differences  are  expected to be  recovered  or
settled.  The effect on deferred tax assets and  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment  date. A
valuation  allowance is provided  for those  deferred tax assets for which it is
more likely than not that the related benefits will not be realized.

                                       56
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     STOCK COMPENSATION

     The Company  accounts for employee stock  compensation  using the intrinsic
value method specified by Accounting  Principles Board (APB) No. 25,  Accounting
for Stock Issued to  Employees,  and related  interpretations  (APB 25). The pro
forma disclosures required by Statement of Financial Accounting Standards (SFAS)
No. 123,  Accounting for  Stock-Based  Compensation,  (SFAS 123) are included in
Note 13. The Company  accounts for stock-based  compensation  arrangements  with
non-employees  in  accordance  with  Emerging  Issues Task Force Issue No 96-18,
Accounting  for Equity  Instruments  that are Issued to Other Than Employees for
Acquiring  or in  Conjunction  with Selling  Goods or Services.  During the year
ended June 30, 2002, the Company  recorded a non-cash  charge to other operating
expenses  of   approximately   $73,000   related  to  stock  options  issued  to
non-employees.

     EARNINGS PER SHARE

     A  reconciliation  of the numerators  and  denominators  (weighted  average
number  of shares  outstanding)  of the basic  and  diluted  earnings  per share
computations for the years ended June 30, 2002, 2001 and 2000 are as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                  2002                                   2001                                  2000
                  ------------------------------------   -----------------------------------   ------------------------------------
                   INCOME*        SHARES     PER SHARE     LOSS*        SHARES     PER SHARE     LOSS*        SHARES      PER SHARE
                 (NUMERATOR)  (DENOMINATOR)    AMOUNT   (NUMERATOR)  (DENOMINATOR)   AMOUNT   (NUMERATOR)  (DENOMINATOR)    AMOUNT
                  ---------    -----------   ---------   ---------    -----------  ---------   ---------    -----------   ---------
<S>               <C>          <C>           <C>         <C>          <C>          <C>         <C>          <C>           <C>
Basic EPS ......  $   3,889        15,190    $   (0.26)  $(226,731)       14,744   $  (15.38)  $ (99,532)       14,592    $   (6.82)
                                             =========                             =========                              =========
Effect of
stock options...         --           583                       --            --                      --            --           --
                  ---------     ---------    ---------   ---------     ---------   ---------   ---------     ---------    ---------
Diluted EPS ....  $   3,889        15,773    $   (0.25)  $(226,731)       14,744   $  (15.38)  $ (99,532)       14,592    $   (6.82)
                  =========     =========    =========   =========     =========   =========   =========     =========    =========
</TABLE>

*    Represents income (loss) before extraordinary loss and cumulative effect of
     change in accounting principle.

     As a result of the net loss before extraordinary loss and cumulative effect
of change in accounting  principle in 2001 and 2000, stock options with exercise
prices  below  the  applicable   market  prices  have  been  excluded  from  the
calculation of diluted earnings per share as the impact was anti-dilutive.  Such
options totaled 169,000 in 2001 and 39,000 in 2000.

     FOREIGN CURRENCY TRANSLATION

     Our Argentine  subsidiaries  utilized the peso as their functional currency
as their  business is primarily  transacted in pesos.  Since 1991, the Argentine
peso had  been  pegged  to the U.S.  dollar  at an  exchange  rate of 1 to 1. In
December 2001, the Argentine  government  imposed  exchange  restrictions  which
severely limited cash conversions and withdrawals. When exchange houses reopened
on January 11, 2002, the peso to dollar exchange rate closed at 1.7 pesos to the
dollar.

     In order to prepare the accompanying financial statements as of and for the
year ended June 30,  2002,  we  translated  the balance  sheet of our  Argentine
subsidiaries  using an  exchange  rate of 3.9 pesos to 1 US dollar,  the closing
rate on June 30, 2002,  while their statements of operations and cash flows were
translated using the weighted  average rate in effect during the period.  As the
liabilities  of Argentine  subsidiaries  exceeded  their  assets,  the change in
exchange rates resulted in a credit to accumulated  other  comprehensive  income
(loss)  in  our  consolidated  balance  sheet  as  of  June  30,  2002.  Further
fluctuations  in the peso to dollar exchange rate will impact the translation of
the financial  statements of the Argentine  subsidiaries for financial reporting
purposes.  As discussed in Note 17, the Company  disposed of its Latin  American
operations in a sale to local management on September 27, 2002.

                                       57
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     CONCENTRATIONS OF CREDIT RISK

     Financial   instruments   which   potentially   subject   the   Company  to
concentrations  of  credit  risk  consist   principally  of  cash  and  accounts
receivable. The Company places its cash with federally-insured  institutions and
limits the amount of credit exposure to any one institution.  Concentrations  of
credit  risk with  respect to accounts  receivable  are limited due to the large
number of customers and their geographical dispersion.

     START-UP COSTS

     In accordance  with Statement of Position 98-5,  "Reporting on the Costs of
Start-up Activities," effective July 1, 1999, the Company was required to change
its  method of  accounting  for  organization  costs.  Previously,  the  Company
capitalized  such costs and amortized them using the  straight-line  method over
five years. At June 30, 1999, such unamortized  costs totaled  $933,000.  During
the fiscal year ended June 30,  2000,  the  Company  wrote-off  its  capitalized
organization  costs and will expense any future  organization costs as incurred.
The  write-off  was  $541,000  (net of a tax benefit of  $392,000)  and has been
reflected in the consolidated  statements of operation as the cumulative  effect
of change in accounting principle.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 143,  Accounting for Asset  Retirement  Obligations  (SFAS 143).  Under this
standard, asset retirement obligations will be recognized when incurred at their
estimated fair value. In addition,  the cost of the asset retirement obligations
will be capitalized as a part of the asset's carrying value and depreciated over
the asset's  remaining  useful life.  The Company will be required to adopt SFAS
143  effective  July 1, 2002 and does not  expect  that it will have a  material
impact on its financial condition or results of operations.

     In  October,  2001,  the FASB  issued  SFAS  No.  144,  Accounting  for the
Impairment or Disposal of Long-Lived  Assets (SFAS 144). This standard  requires
that all long-lived  assets (including  discontinued  operations) that are to be
disposed  of by sale be  measured  at the lower of book value or fair value less
cost  to  sell.  Additionally,  SFAS  144  expands  the  scope  of  discontinued
operations to include all  components of an entity with  operations  that can be
distinguished  from  the rest of the  entity  and  will be  eliminated  from the
ongoing  operations  of  the  entity  in a  disposal  transaction.  SFAS  144 is
effective  for the Company as of July 1, 2002.  The Company  does not expect the
implementation of SFAS 144 to have a material effect on its financial  condition
or results of operations.

     In April 2002, the FASB issued SFAS No. 145,  Rescission of FAS Nos. 4, 44,
and 64,  Amendment of FAS 13, and Technical  Corrections  as of April 2002 (SFAS
145).  This  standard  rescinds  SFAS No. 4,  Reporting  Gains and  Losses  from
Extinguishment  of Debt,  and an  amendment  of that  Statement,  SFAS  No.  64,
Extinguishments of Debt Made to Satisfy  Sinking-Fund  Requirements and excludes
extraordinary   item  treatment  for  gains  and  losses   associated  with  the
extinguishment  of debt that do not meet the APB Opinion No. 30,  Reporting  the
Results of  Operations  --  Reporting  the Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions (APB 30) criteria.  Any gain or loss on extinguishment of debt that
was classified as an extraordinary item in prior periods presented that does not
meet the criteria in APB 30 for classification as an extraordinary item shall be
reclassified.  SFAS 145 also  amends SFAS 13,  Accounting  for Leases as well as
other  existing   authoritative   pronouncements   to  make  various   technical
corrections,  clarify meanings,  or describe their  applicability  under changed
conditions. The Company is required to adopt SFAS 145 effective July 1, 2002 and
does not expect that it will have a material  impact on its financial  condition
or results of operations.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal  Activities (SFAS 146). This standard addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and replaces  Emerging Issues Task Force Issue No. 94-3,  Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain Costs  Incurred in a  Restructuring)  (EITF 94-3).  SFAS 146
requires that a liability for costs associated with an exit or disposal activity
be recognized  when the liability is incurred.  Under EITF 94-3, a liability for

                                       58
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

exit  costs,  as  defined  in EITF No.  94-3 were  recognized  at the date of an
entity's  commitment to an exit plan.  The  provisions of SFAS 146 are effective
for exit or disposal activities that are initiated by the Company after December
31, 2002.

     RECLASSIFICATIONS OF 2001 AND 2000 FINANCIAL INFORMATION

     Certain  financial  information  relating  to fiscal 2001 and 2000 has been
reclassified to conform with the 2002 presentation.

(2)  LIQUIDITY

     During  fiscal  2002,  the  Company  incurred  a net loss of $45.6  million
compared with net losses of $226.7  million in fiscal 2001 and $101.3 million in
fiscal 2000.  (The net loss in 2002 included a charge of $49.5 million  relating
to the adoption  effective  July 1, 2002 of SFAS 142 as discussed in Note 5. The
net  losses  in  fiscal  2001  and  fiscal  2000  included   asset   impairment,
restructuring  and other  similar  charges  totaling  $122.0  million  and $34.0
million,   respectively.)  The  Company's  operating  activities  provided  cash
totaling  $9.3  million  in 2002 and $7.9  million  in 2001  and  utilized  cash
totaling $11.6 million in 2000.

     At June 30,  2002,  the  Company had cash of $9.8  million,  debt of $300.2
million  and a  stockholders'  deficit of $165.3  million.  The  Company's  debt
includes  $149.9  million  of 7 7/8%  senior  notes  due  2008,  $144.4  million
outstanding  under its  revolving  credit  facility,  $4.6 million  payable to a
former joint venture partner and $1.3 million of capital lease obligations.

     As discussed in Note 10, the Company was not in compliance  with certain of
the covenants contained in its revolving credit facility. On September 30, 2002,
the Company  entered into an amended  credit  facility  with its lenders  which,
among other  things,  extended the maturity  date of the facility from March 16,
2003 to December  31, 2004,  waived  previous  non-compliance,  and required the
issuance to the lenders of 211,549 shares of the Company's  Series B convertible
preferred stock.

     The  Company's  ability  to  service  its  long-term  debt,  to  remain  in
compliance with the various  restrictions and covenants  contained in its credit
agreements  and to fund  working  capital,  capital  expenditures  and  business
development  efforts will depend on its ability to generate cash from  operating
activities  which is subject  to,  among  other  things,  its  future  operating
performance as well as to general economic, financial, competitive, legislative,
regulatory and other conditions, some of which may be beyond its control.

     If the Company fails to generate  sufficient cash from  operations,  it may
need to raise additional equity or borrow additional funds to achieve its longer
term  business  objectives.  There  can be no  assurance  that  such  equity  or
borrowings  will be  available  or,  if  available,  will be at rates or  prices
acceptable  to the  Company.  Although  there can be no  assurances,  management
believes  that cash flow from  operating  activities  coupled with existing cash
balances will be adequate to fund the  Company's  operating and capital needs as
well as  enable it to  maintain  compliance  with its  various  debt  agreements
through June 30, 2003.  To the extent that actual  results or events differ from
the Company's  financial  projections  or business  plans,  its liquidity may be
adversely impacted.

(3)  ASSET IMPAIRMENTS, RESTRUCTURING AND OTHER CHARGES

     ASSET IMPAIRMENTS

     In connection  with the  budgeting  process for the fiscal year ending June
30, 2002,  which was completed in the fourth quarter of fiscal 2001, the Company
analyzed each cost center within its various  service areas not  identified  for
closure or  downsizing to determine  whether the  associated  long-lived  assets
(e.g.,  property,  equipment  and  goodwill)  would be  recoverable  from future
operations.  Cost centers  represent  individual  operating units within a given
service  area  for  which  separately  identifiable  cash  flow  information  is
available.  The Company  performed this analysis as a result of its expectations

                                       59
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

of a challenging  health care  reimbursement  environment as well as anticipated
increases in labor and  insurance  costs with respect to its domestic  ambulance
operations.  This analysis  considered  the results of operations  over the past
year. The analysis with respect to the Company's  Argentine  operations included
the impact of the  deteriorating  economic and political  environment as well as
information  developed by a third party  concerning the  marketability  of these
operations during fiscal 2001.

     In order to assess  recoverability,  the Company  estimated  the net future
cash flows for each cost center and then  compared  the  resulting  undiscounted
amounts to the carrying value of each cost center's long-lived assets. It should
be noted that property and equipment  balances are specifically  identified with
each cost center.  Additionally,  goodwill is specifically  identified with each
cost center at the time of acquisition and, therefore,  related allocations were
not necessary for purposes of performing the impairment analysis.

     For  those  cost  centers  where  estimated  future  net  cash  flows on an
undiscounted basis were less than the related carrying amounts of the long-lived
assets,  an asset  impairment was considered to exist.  The Company measured the
amount of the asset  impairment  for each such cost  center by  discounting  its
estimated future net cash flows using a discount rate of 18.5% and comparing the
resulting amount to the carrying value of its long-lived assets. Based upon this
analysis,  the Company  determined that asset impairment  charges  approximating
$94.4 million were  required for cost centers  within its domestic and Argentine
ambulance  operations.  The asset  impairments were charged directly against the
related asset balances. A summary of the related charge is as follows:

                                                       PROPERTY,
                                                       EQUIPMENT
                                           GOODWILL    AND OTHER     TOTAL
                                           --------    ---------    -------
                                                    (IN THOUSANDS)
     Domestic ambulance operations ......   $41,631     $ 6,419     $48,050
     Argentine ambulance operations .....    44,327       1,976      46,303
                                            -------     -------     -------
        Total ...........................   $85,958     $ 8,395     $94,353
                                            =======     =======     =======

     As discussed in Note 5, the Company  changed its method of  accounting  for
goodwill  effective  July  1,  2001  including  the  manner  in  which  goodwill
impairments are assessed.

     RESTRUCTURING AND OTHER CHARGES

     During the fourth quarter of fiscal 2001,  the Company  decided to close or
downsize nine service areas and in connection therewith,  recorded restructuring
charges in accordance with EITF 94-3 as well as other related  charges  totaling
$9.1 million.  These  charges  included  $1.5 million to cover  severance  costs
associated with the termination of approximately 250 employees, all of whom were
expected to leave by the end of fiscal 2002,  lease  termination  and other exit
costs of $2.4 million,  and asset  impairment  charges for goodwill and property
and  equipment of $4.1 million and $1.1  million,  respectively,  related to the
impacted  service  areas.  The service areas  selected for closure or downsizing
generated  revenue of $11.8 million,  operating  income of $1.0 million and cash
flow of $2.5  million  for the year  ended  June 30,  2002.  The  service  areas
selected for closure or downsizing generated revenue of $17.7 million, operating
losses of $4.0  million and  negative  cash flow of $3.2  million for the fiscal
year ended June 30, 2001.  Approximately 88 of the impacted  employees have been
terminated, as of June 30, 2002.

     The  previously   mentioned  charge  included  accrued   severance,   lease
termination  and  other  costs  totaling  $1.5  million  relating  to  an  under
performing  service  area that the  Company  had  planned to exit at the time of
contract  expiration  in December  2001.  During  fiscal 2002,  the contract was
extended for a one-year  period at the request of the  municipality to enable it
to transition medical  transportation  service to a new provider.  In connection
with the contract  extension,  the Company  reversed  $0.2 million of previously
accrued lease termination costs relating to the extension period.  This reversal
is reflected as a credit to restructuring  and other charges in the consolidated
statement of  operations  for fiscal 2002.  The  operating  environment  in this
service  area has  improved  and the Company  recently  was awarded a multi-year
contract. As a result, the remaining reserve of $1.3 million originally recorded
in 2001 will be released to income when the related contract is finalized.

                                       60
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     During  fiscal  2000,  the Company  decided to close or downsize 26 service
areas and in connection therewith,  recorded restructuring charges in accordance
with EITF 94-3 as well as other related  charges  totaling $34.0 million.  These
restructuring  charges included $6.6 million to cover severance costs associated
with the termination of  approximately  300 employees,  all of whom had left the
Company  by June 30,  2001,  lease  termination  and  other  exit  costs of $3.3
million, and asset impairment charges for goodwill and property and equipment of
$22.2 million and $1.9  million,  respectively.  The service areas  selected for
closure generated revenue of $38.7 million, operating losses of $3.7 million and
negative cash flow of $1.0 million for the fiscal year ended June 30, 2000.

     A summary of activity in the Company's restructuring reserves is:

<TABLE>
<CAPTION>
                                                                    LEASE      WRITE-OFF OF
                                       SEVERANCE    TERMINATION   INTANGIBLE    OTHER EXIT
                                         COSTS         COSTS        ASSETS        COSTS          TOTAL
                                       --------      --------      --------      --------      --------
<S>                                    <C>           <C>           <C>           <C>           <C>
Balance at June 30, 1999 ...........   $  1,328      $     --      $     --      $     --      $  1,328

  Fiscal 2000 charge recorded ......      6,621         3,299        22,250         1,877        34,047
  Fiscal 2000 usage ................     (4,420)          (52)      (22,250)         (521)      (27,243)
                                       --------      --------      --------      --------      --------

Balance at June 30, 2000 ...........      3,529         3,247            --         1,356         8,132

  Fiscal 2001 charge recorded ......      1,475         2,371         4,092         1,153         9,091
  Fiscal 2001 usage ................     (4,531)       (1,071)       (4,092)       (1,360)      (11,054)
  Adjustments ......................      1,361        (1,313)           --           (48)           --
                                       --------      --------      --------      --------      --------

Balance at June 30, 2001 ...........      1,834         3,234            --         1,101         6,169

  Fiscal 2002 usage ................     (1,025)       (1,172)           --          (951)       (3,148)
  Adjustments ......................        (52)         (548)           --          (118)         (718)
                                       --------      --------      --------      --------      --------

Balance at June 30, 2002 ...........   $    757      $  1,514      $     --      $     32      $  2,303
                                       ========      ========      ========      ========      ========
</TABLE>

     LOSS ON DISPOSITION OF CLINIC OPERATIONS

     During  fiscal 2001,  the Company sold its Argentine  clinic  operations in
exchange for a $3.0 million  non-interest  bearing  note  receivable.  The note,
which is included in other assets in the  consolidated  balance sheet,  requires
monthly principal payments of $25,000 through April 2011. The sale resulted in a
loss on disposition of $9.4 million,  including the write-off of $9.3 million of
related  goodwill.  The clinic  operations  generated  revenue of $4.0  million,
operating  losses of $1.5 million and negative cash flow of $0.9 million for the
fiscal year ended June 30, 2001.

     CONTRACT TERMINATIONS AND RELATED ASSET IMPAIRMENTS

     In November  2000,  the Company  learned that its exclusive 911 contract in
Lincoln,  Nebraska  would not be  renewed  effective  December  31,  2000 and in
connection  therewith,  recorded a contract  termination charge of $5.2 million.
This charge  included  asset  impairments  for related  goodwill  and  equipment
totaling  $4.3  million (the  exclusive  911 contract was acquired in a purchase
business  combination  in fiscal 1995),  $0.8 million to cover  severance  costs
associated  with  terminated   employees,   and  $0.1  million  to  cover  lease
terminations  and other exit costs. The Lincoln  contract  generated  revenue of
$4.7 million,  operating income of $0.4 million and cash flow of $0.5 million in
fiscal 2000, its last full year of operations.

     In May 2001,  the  Company  learned  that its  exclusive  911  contract  in
Arlington,  Texas  would not be  renewed  effective  September  30,  2001 and in
connection  therewith,  recorded a contract  termination charge of $4.1 million.
This charge  included asset  impairments  for related  goodwill and equipment of
$3.9 million  (the  exclusive  911 contract was acquired in a purchase  business

                                       61
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

combination in fiscal 1997),  $0.1 million to cover severance  costs  associated
with terminated employees, and $0.1 million to cover lease termination and other
exit costs.  The asset  impairments  were charged  directly  against the related
assets.  The Arlington  contract  generated  revenue of $8.3 million,  operating
income of $0.1  million  and cash flow of $0.5  million in fiscal  2001 its last
full year of operations.

     EXPROPRIATION OF CANADIAN AMBULANCE SERVICE LICENSES

     During  the fiscal  year  ended June 30,  2000,  the  Company  recorded  an
extraordinary  loss on the expropriation of Canadian  ambulance service licenses
of   approximately   $1.2  million  (net  of  $0  tax).  The  Company   received
approximately  $2.2 million from the Ontario  Ministry of Health as compensation
for the loss of  licenses  and  incurred  costs  and  wrote-off  assets,  mainly
goodwill, totaling $3.4 million.

(4)  PROPERTY AND EQUIPMENT

     Property and  equipment,  including  equipment  held under capital  leases,
consisted of the following:

                                                      JUNE 30,
                                              ----------------------
                                                2002         2001
                                              ---------    ---------
                                                  (IN THOUSANDS)
     Equipment .............................  $  55,739    $  57,840
     Vehicles ..............................     73,908       71,628
     Land and buildings ....................     16,788       16,896
     Leasehold improvements ................      7,270        8,373
                                              ---------    ---------
                                                153,705      154,737
     Less: Accumulated depreciation ........   (105,173)     (96,738)
                                              ---------    ---------
                                              $  48,532    $  57,999
                                              =========    =========

    The Company  held  vehicles and  equipment  with a gross  carrying  value of
approximately  $14.2 and $16.9 million at June 30, 2002 and 2001,  respectively,
under capital lease agreements. Accumulated depreciation on these assets totaled
approximately $12.3 and $14.3 million at June 30, 2002 and 2001, respectively.

     The  Company has  pledged  property  and  equipment,  including  land and a
building,  leasehold  improvements  and  equipment,  with a net  book  value  of
approximately  $11.2  million  to secure  certain of its  obligations  under its
insurance  and  surety  bonding   programs   including   certain   reimbursement
obligations with respect to the workers' compensation, performance bonds, appeal
bonds and other aspects of such insurance and surety bonding programs.

     A summary of activity in the Company's property and equipment balance is as
follows:

                                                           JUNE 30,
                                               --------------------------------
                                                 2002        2001        2000
                                               --------    --------    --------
                                                        (IN THOUSANDS)
     Balance at beginning of year ...........  $ 57,999    $ 85,919    $ 95,032
     Depreciation expense ...................   (15,155)    (21,809)    (25,009)
     Additions ..............................     6,854       5,774      17,131
     Asset impairments ......................        --      (8,502)         --
     Asset disposals ........................      (737)     (1,643)     (1,220)
     Effect of Argentine peso devaluation ...      (429)         --          --
     Disposition of clinic operations .......        --      (1,740)         --
     Expropriation of Canadian ambulance
       service licenses .....................        --          --         (15)
                                               --------    --------    --------
     Balance at end of year .................  $ 48,532    $ 57,999    $ 85,919
                                               ========    ========    ========

                                       62
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(5)  GOODWILL

     In June 2001,  the FASB issued SFAS No. 141,  Business  Combinations  (SFAS
141) and No. 142,  Goodwill  and Other  Intangible  Assets  (SFAS 142.) SFAS 141
superseded APB Opinion No. 16, Business Combinations. The provisions of SFAS 141
require  that  the  purchase  method  of  accounting  be used  for all  business
combinations  initiated after June 30, 2001;  provide specific  criteria for the
initial  recognition and  measurement of intangible  assets apart from goodwill;
and, require that unamortized negative goodwill be written off immediately as an
extraordinary  gain  instead  of being  deferred  and  amortized.  SFAS 141 also
requires  that  upon  adoption  of  SFAS  142,  certain   intangible  assets  be
reclassified  into or out of  goodwill  based  on  certain  criteria.  SFAS  142
supersedes APB Opinion No. 17,  Intangible  Assets,  and is effective for fiscal
years beginning after December 15, 2001 although earlier adoption is encouraged.
SFAS 142 primarily  addresses the accounting for goodwill and intangible  assets
subsequent to their initial recognition. The provisions of SFAS 142 prohibit the
amortization of goodwill and indefinite-lived intangible assets and require that
such assets be tested  annually for impairment (and in interim periods if events
or  circumstances  indicate that the related  carrying  amount may be impaired),
require that reporting  units be identified for purposes of assessing  potential
impairments,  and remove the forty-year limitation on the amortization period of
intangible assets that have finite lives.

     SFAS 142 requires that goodwill be tested for  impairment  using a two-step
process.  The first  step of the  goodwill  impairment  test,  used to  identify
potential  impairment,  compares  the fair  value of a  reporting  unit with its
carrying  amount,  including  goodwill.  If the fair value of a  reporting  unit
exceeds its carrying amount, goodwill of the reporting unit is not considered to
be impaired and the second step of the impairment  test is  unnecessary.  If the
carrying  amount of a reporting unit exceeds its fair value,  the second step of
the  goodwill  impairment  test  must be  performed  to  measure  the  amount of
impairment  loss,  if any.  The  second  step of the  goodwill  impairment  test
compares  the implied fair value of reporting  unit  goodwill  with the carrying
amount of that goodwill. The implied fair value of goodwill is determined in the
same manner as the amount of goodwill recognized in a business  combination.  If
the carrying  amount of the  reporting  unit  goodwill  exceeds the implied fair
value of that goodwill,  an impairment  loss is recognized in an amount equal to
that excess.

     The  Company  adopted  SFAS 142  effective  July 1,  2001 and  discontinued
amortization  of  goodwill as of that date.  During the first  quarter of fiscal
2002, the Company  identified its various  reporting  units which consist of the
individual  cost centers  within its medical  transportation  and fire and other
operating  segments for which separately  identifiable  cash flow information is
available.  During the second quarter of fiscal 2002, the Company  completed the
first step impairment test as of July 1, 2001.  Potential  goodwill  impairments
were identified in certain of these reporting  units.  During the fourth quarter
of fiscal 2002, the Company  completed the second step test and determined  that
all or a portion of the goodwill  applicable to certain of its  reporting  units
was  impaired  as of July 1,  2001  resulting  in an  aggregate  charge of $49.5
million.  The  fair  value of the  reporting  units  was  determined  using  the
discounted  cash flow method and a discount rate of 15.0%.  This charge has been
reflected  in the  accompanying  consolidated  statement  of  operations  as the
cumulative effect of change in accounting principle. Additionally, the Company's
results for the first  quarter of fiscal 2002 have been restated to reflect this
charge in that period as required by SFAS 142. The Company has selected  June 30
as the date on which it will perform its annual goodwill impairment test.

     The following table  summarizes the Company's  reported  results along with
adjusted  amounts as if the  Company  had  adopted  SFAS 142,  and  discontinued
goodwill  amortization,  as of July 1,  1999 (in  thousands,  except  per  share
amounts):

                                       63
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>
<CAPTION>
                                                                      FOR THE YEAR ENDED JUNE 30,
                                                               ----------------------------------------
                                                                  2002          2001           2000
                                                               -----------   -----------    -----------
<S>                                                            <C>           <C>            <C>
Reported net income (loss) before extraordinary loss and
 cumulative effect of change in accounting principle .......   $     3,889   $  (226,731)   $   (99,532)
Add back: Goodwill amortization ............................            --         7,161          8,052
                                                               -----------   -----------    -----------
Adjusted income (loss) before extraordinary loss
 and cumulative effect of change in accounting
 Principle .................................................         3,889      (219,570)       (91,480)
Extraordinary loss .........................................            --            --         (1,200)
Cumulative effect of change in accounting principle ........       (49,513)           --           (541)
                                                               -----------   -----------    -----------
Adjusted net income (loss) .................................   $   (45,624)  $  (219,570)   $   (93,221)
                                                               ===========   ===========    ===========
Basic income (loss) per share:
   Reported income (loss) before extraordinary loss and
     cumulative effect of change in accounting principle ...   $      0.26   $    (15.38)   $     (6.82)
   Goodwill amortization ...................................            --          0.49           0.55
                                                               -----------   -----------    -----------
   Adjusted income (loss)  before extraordinary loss and
     cumulative effect of change in accounting principle ...          0.26        (14.89)         (6.27)
   Extraordinary loss ......................................            --            --          (0.08)
   Cumulative effect of change in accounting principle .....         (3.26)           --          (0.04)
                                                               -----------   -----------    -----------

   Adjusted net income (loss) ..............................   $     (3.00)  $    (14.89)   $     (6.39)
                                                               ===========   ===========    ===========
Diluted income (loss) per share:
   Reported income (loss) before extraordinary loss and
     cumulative effect of change in accounting principle ...   $      0.25   $    (15.38)   $     (6.82)
   Goodwill amortization ...................................            --          0.49           0.55
                                                               -----------   -----------    -----------
   Adjusted income (loss) before extraordinary loss and
     cumulative effect of change in accounting principle ...          0.25        (14.89)         (6.27)
   Extraordinary loss ......................................            --            --          (0.08)
   Cumulative effect of change in accounting principle .....         (3.14)           --          (0.04)
                                                               -----------   -----------    -----------

   Adjusted net income (loss) ..............................   $     (2.89)  $    (14.89)   $     (6.39)
                                                               ===========   ===========    ===========
</TABLE>

     The changes in the carrying  amount of goodwill for the year ended June 30,
2002 is as follows (in thousands):

                                  MEDICAL       FIRE AND
                               TRANSPORTATION     OTHER
                                  SEGMENT        SEGMENT        TOTAL
                                 ---------      ---------     ---------
Balance at beginning of year     $  89,598      $   1,159     $  90,757
Adoption of SFAS No. 142           (49,513)            --       (49,513)
                                 ---------      ---------     ---------
Balance at end of year           $  40,085      $   1,159     $  41,244
                                 =========      =========     =========

(6)  INVESTMENTS

     PUBLIC/PRIVATE ALLIANCE

     During fiscal 1998, the Company entered into a public/private alliance with
the City of San Diego to  provide  all  emergency  and  non-emergency  transport
services.  As part of the alliance,  a limited  liability  company (the LLC) was
created with a 50/50 ownership  between the Company and the City. A wholly-owned
subsidiary  of the Company  contracts  with the LLC to provide  operational  and
administrative  support.  In  addition,  the Company  contracts  with the LLC to
provide billing and collection services. Revenue generated under the operational
and  administrative  support contract  totaled $14.7 million,  $12.1 million and

                                       64
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

$9.5  million for the years ended June 30,  2002,  2001 and 2000,  respectively.
Revenue  generated under the billing and collection  services  contract  totaled
$1.3 million for each of the years ended June 30, 2002 and 2001 and $0.9 million
for the year ended June 30, 2000. The Company accounts for its investment in the
LLC using the equity  method.  At June 30, 2002 and 2001,  the carrying value of
this investment was approximately  $1.1 million and $0.9 million,  respectively,
and is included in other assets in the accompanying  consolidated balance sheet.
The Company's share of the LLC's earnings was approximately  $0.8 million,  $0.8
million  and $1.2  million  for the years  ended June 30,  2002,  2001 and 2000,
respectively.

     JOINT VENTURE

     During  fiscal 1998,  the Company  entered into a joint  venture to provide
non-emergency transport services in the Maryland,  Washington, D.C. and northern
Virginia areas. The Company obtained a majority interest in the joint venture in
exchange for a commitment to provide $8.0 million in funding for acquisitions by
the joint venture in the greater Baltimore,  Maryland and Washington, D.C. areas
(which  commitment was fulfilled by June 30, 1998). The other party to the joint
venture  contributed  the stock of two  ambulance  companies in exchange for his
minority stake in the joint venture.  The Company consolidated the joint venture
for financial reporting purposes.

     The joint  venture  agreement  allowed  the  minority  partner to "put" his
interest in the joint  venture to the Company.  The  agreement  also allowed the
Company the option to delay the purchase of the minority  partner's interest for
a period of one year.  During  fiscal  2001,  the  minority  partner  elected to
exercise  the  "put"  option  and the  Company  exercised  its  right  to  delay
purchasing the minority partner's interest for one year. Based on the provisions
of the joint venture  agreement,  the purchase  price for the minority  partners
interest   approximated   $5.1  million.   The  Company  recorded  a  charge  of
approximately  $4.0 million to other income  (expense),  net during  fiscal 2001
relating to this agreement.

     During the year ended June 30, 2002, the Company  completed the purchase of
the minority  partner's interest in exchange for a note payable of approximately
$5.1 million.  The note bears  interest at prime plus 2.25% (subject to a cap of
7.75%) and requires monthly principal and interest payments ranging from $70,000
to  $125,000  through  December  2006.  Additionally,  any  outstanding  accrued
interest  is due at  maturity.  The Company  reflected  this  transaction  as an
increase in long-term  debt of $5.1  million  offset by  reductions  in minority
interest of $8.0 million and other assets of $2.9 million.  The transaction also
resulted in other income of $9,000 in fiscal 2002.

(7)  ACCRUED LIABILITIES

     Accrued liabilities at June 30, 2002 and 2001 consisted of the following:

                                                             AT JUNE 30,
                                                        ---------------------
                                                          2002         2001
                                                        --------     --------
     Workers' compensation claim reserves ............  $ 15,924     $ 14,944
     General liability claim reserves ................    15,433       19,715
     Accrued salaries, wages and related payroll .....    10,678       11,397
     Accrued interest ................................    10,512        7,561
     Other accrued liabilities .......................    21,172       42,723
                                                        --------     --------

     Total accrued liabilities .......................  $ 73,719     $ 96,340
                                                        ========     ========

     The  decrease  in  other  accrued  liabilities  between  2002  and  2001 is
primarily due to the devaluation of the Argentine peso.

(8)  GENERAL LIABILITY AND WORKERS' COMPENSATION PROGRAMS

     The Company  retains certain levels of exposure with respect to its general
liability and workers'  compensation  programs and purchases coverage from third
party insurers for exposures in excess of those levels. In addition to expensing
premiums and other costs relating to excess  coverage,  the Company  establishes
reserves for both reported and incurred but not reported claims within its level

                                       65
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

of retention based on currently available  information as well as its historical
claims  experience  The Company  adjusts its claim  reserves  with an associated
charge or credit to  expense  as new  information  on the  underlying  claims is
obtained.

     A summary of activity in the Company's  general  liability  claim reserves,
which are included in accrued liabilities in the consolidated  balance sheet, is
as follows:

                                                     JUNE 30,
                                         --------------------------------
                                           2002        2001        2000
                                         --------    --------    --------
                                                  (IN THOUSANDS)
     Balance at beginning of year .....  $ 19,715    $  3,171    $  2,081
     Provision charged to other
       operating expense ..............     2,442      22,326       6,146
     Claim payments charged
       against the reserve ............    (6,724)     (5,782)     (5,056)
                                         --------    --------    --------
     Balance at end of year ...........  $ 15,433    $ 19,715    $  3,171
                                         ========    ========    ========

     The  rising  cost  of  claims  as well as the  cost of  related  litigation
prompted  the  Company to perform a  comprehensive  review of  information  from
external advisors,  historical settlement information and open claims during the
third quarter of fiscal 2001. As a result of this review, the Company recorded a
charge of $15.0  million for  increases in its  reserves for reported  claims as
well as to establish reserves for claims incurred but not reported.  The Company
engaged  independent  actuaries to assist with its evaluation of the adequacy of
its general liability claim reserves as of June 30, 2002 and 2001. The provision
charged to expense  during  fiscal 2000 included a charge of $3.8 million in the
fourth  quarter for  increases  in  estimated  settlement  amounts for  reported
claims.

     The Company  has been  required  to provide  collateral  for certain of its
general liability policies. Such collateral,  which consisted of cash on deposit
with the  insurer or its agent  totaled  $1.9  million  at June 30,  2002 and is
included in other assets in the consolidated balance sheet.

     A  summary  of  activity  in  the  Company's  workers'  compensation  claim
reserves,  which are also included in accrued  liabilities  in the  consolidated
balance sheet, is as follows:



                                                     JUNE 30,
                                         --------------------------------
                                           2002        2001        2000
                                         --------    --------    --------
                                                  (IN THOUSANDS)
     Balance at beginning of year .....  $ 14,944    $ 11,315    $    132
     Provision charged to payroll
       and employee benefits ..........     7,318      11,832      18,941
     Claim payments charged
       against the claim reserve ......    (6,338)     (8,203)     (7,758)
                                         --------    --------    --------
     Balance at end of year ...........  $ 15,924    $ 14,944    $ 11,315
                                         ========    ========    ========

     In connection with the Company's restructuring  activities,  an increase in
the volume of  workers'  compensation  claims was noted.  Provisions  charged to
expense  during  fiscal  2002  includes  $2.0  million  of  additional   workers
compensation  claim reserves based on a review of claims  experience  during the
fourth quarter.  Provisions  charged to expense during fiscal 2001 included $5.0
million in the third  quarter for  increases in reserves for  unreported  claims
based on updated  information  received  from the  Company's  third party claims
administrator.  The Company  engaged  independent  actuaries  to assist with its
evaluation  of the adequacy of its workers'  compensation  claim  reserves as of
June 30,  2002 and 2001.  Provisions  charged  to  expense  during  fiscal  2000
included  $12.2  million in the fourth  quarter to  establish  reserves for both
reported  and  incurred  but not  reported  claims.  The Company had  previously
expensed the cost of its workers'  compensation program as related payments were
made, and the Company believes that this method approximated the accrual method.

                                       66
<PAGE>
                             RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     The Company has also been  required to provide  deposits for certain of its
workers' compensation policies. Such amounts, which consisted of cash on deposit
with the  insurer or its agent,  totaled  $9.2  million at June 30,  2002 and is
included in prepaid and other  assets  ($2.9  million)  and other  assets  ($6.3
million) in the consolidated balance sheet.

     During  fiscal  years 1992  through  2001,  the Company  purchased  certain
portions of its workers'  compensation  coverage from Reliance Insurance Company
(Reliance).  At the time the coverage was  purchased,  Reliance was an "A" rated
insurance  company.  In  connection  with this  coverage,  the Company  provided
Reliance with various amounts and forms of collateral (e.g.,  letters of credit,
surety bonds and cash deposits) to secure its  performance  under the respective
policies as was customary and required in the workers' compensation  marketplace
at the time. As of June 30, 2002,  Reliance held $3.0 million of cash collateral
under this coverage.

     On  May  29,  2001,  Reliance  was  placed  under   rehabilitation  by  the
Pennsylvania  Insurance  Department (the  Department) and on October 3, 2001 was
placed into liquidation by the Department. As mentioned previously,  the cash on
deposit  with  Reliance  serves to secure the  Company's  performance  under the
related policies; specifically, the payment of claims within the Company's level
of retention in the various policy years.  Consistent  with past  practice,  the
Company  periodically  funds an  imprest  account  maintained  by the  Company's
third-party administrator who actually makes claim payments on its behalf. It is
the  Company's  understanding  that the  cash  collateral  held by the  Reliance
liquidator  will be returned once all related claims have been satisfied so long
as the Company has  satisfied the claim  payment  obligations  under the related
policies.  To the extent that  certain of the  Company's  workers'  compensation
claims have  exceeded the level of retention  under the Reliance  policies,  the
applicable  state  guaranty  funds have  provided such coverage at no additional
cost to the Company.

     For fiscal  2002,  the  Company  purchased  certain  portions  of  workers'
compensation  coverage from Legion Insurance Company  (Legion).  At the time the
coverage was purchased, Legion was an "A" rated insurance carrier. In connection
with the Legion policy, the Company deposited $6.2 million into a "cell-captive"
insurance  program  managed by Mutual Risk  Management  (MRM),  an  affiliate of
Legion.  This  deposit  approximated  the  amount of claims  within the level of
retention for the policy year May 1, 2001 through April 30, 2002. In contrast to
the deposits  placed with  Reliance,  this deposit is not  collateral  to secure
performance  under the policy but rather  represents  funds to be used by MRM to
pay claims within the Company's level of retention on the Company's  behalf.  As
of June 30, 2002, MRM held $5.7 million of cash under this program.

     On April 1, 2002, Legion was placed under rehabilitation by the Department.
MRM has  continued to utilize the cash on deposit to make claim  payments on the
Company's behalf.  Additionally,  it is the Company's  understanding  that these
funds  represent  the Company's  assets and are not general  assets of Legion or
MRM.

     Based on the information currently available, the Company believes that the
amounts on deposit with Reliance and Legion/MRM are fully  recoverable  and will
either be returned to the Company or used to pay claims on the Company's behalf.
The Company's  inability to access the funds on deposit with either  Reliance or
Legion/MRM  could  have a material  adverse  effect on its  business,  financial
condition, results of operations and cash flows.

                                       67
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(9)  OTHER CHARGES AND CREDITS

     During the fiscal  years  ended June 30,  2002,  2001 and 2000 the  Company
recorded the following other charges or credits:

                                               FISCAL YEAR ENDED JUNE 30,
                                               ---------------------------
                                                2002      2001      2000
                                               -------   -------   -------
     Argentine Operations...................   $    --   $ 8,512   $    --
     Supply Inventory.......................        --     8,442        --
     Other Charges and Credits..............    (1,712)    3,079     4,088
     Paid Time Off for Field Personnel......    (1,300)    3,010        --
     Employee Medical Benefits..............        --     5,429     2,596
     Amount Due from Former Owner...........        --       962        --
     Medicare/Medicaid Audits...............    (1,298)    1,300     3,900
     Restructuring Consultants..............        --        --     1,110
     Investment Write-Offs..................        --        --     2,937
     Write-Off of Disputed Refunds..........        --        --     1,796

     ARGENTINE OPERATIONS

     The  Company  recorded  charges  totaling  $8.5  million  related  to asset
write-offs and reserve  adjustments.  The Company's  Argentine  subsidiaries had
been  effected by  escalating  political  and  economic  instability  as well as
changes in local management during fiscal 2001. The charge was recorded in other
operating expenses in the consolidated statement of operations.

     SUPPLY INVENTORY

     Medical,  fleet and fire supplies are  maintained  in a central  warehouse,
numerous regional  warehouses,  and multiple stations,  lockers and vehicles.  A
physical  inventory of all  locations at June 30, 2001  revealed a shortage from
recorded levels. Shrinkage, obsolescence and losses due to service area closures
accounted  for the  shortage.  The Company  recorded a charge of $8.4 million to
write-down  its  inventory  balances  to  amounts  determined  by  the  physical
inventory.   The  charge  was  recorded  in  other  operating  expenses  in  the
consolidated statement of operations.

     OTHER CHARGES AND CREDITS

     During the third quarter of fiscal 2002, the Company  recorded the reversal
of $1.7 million of discretionary employee benefits accrued in calendar 2000 as a
result of the Company's decision not to pay such benefits.  The original charge,
as well as the current  year  reversal,  were  reflected in payroll and employee
benefits in the consolidated statement of operations.

     The Company  recorded  charges  totaling  $3.1 million in fiscal 2001 for a
number of items related to its domestic  operations,  the largest of which was a
$0.7  million  charge  relating  to  administrative  costs paid on behalf of the
Company's  employee benefit plans. These charges were a result of adjustments to
certain estimates for prepaid expenses, accrued liabilities and other items that
were resolved in the fourth quarter of fiscal 2001.

     The Company  recorded  charges  totaling  $4.1 million in fiscal 2000 for a
number of estimates that were resolved related to its domestic operations. These
items included the write-off of capitalized  acquisition  costs for transactions
that were terminated ($0.9 million),  write-off of costs related to unsuccessful
proposals ($0.6 million),  write-off of costs capitalized in connection with the
re-branding of vehicles ($1.0  million),  and  capitalized  costs related to the
Company's vehicle  refurbishment center which was closed in the third quarter of
fiscal 2000 ($1.0  million).  These  charges were  reflected in other  operating
expenses in the consolidated statement of operations.

                                       68
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     PAID-TIME-OFF FOR FIELD PERSONNEL

     During  the fourth  quarter of fiscal  2002,  the  Company  recorded a $1.3
million  reduction in its  paid-time-off  accrual as a result of a change in the
related  policies.  The  reduction  was  recorded as a reduction  of payroll and
employee benefits in the consolidated statement of operations.

     During  the  fourth  quarter  of fiscal  2001,  the  Company  analyzed  its
paid-time-off  accruals and determined  that its  paid-time-off  policy had been
inconsistently  applied in certain  service areas. As a result of this analysis,
the Company  recorded a charge of $3.0 million to bring the liability  into line
with the amount required under the related policies. This charge was recorded in
payroll and employee benefits in the consolidated statement of operations.

     EMPLOYEE MEDICAL BENEFITS

     The  Company  self-insures  its  employee  medical  coverage.   Based  upon
information  obtained  from its third party claims  administrator  in the fourth
quarter  of fiscal  2001,  the  Company  recorded  a charge of $5.4  million  to
increase its reserve for incurred but not reported employee medical claims.  The
increased reserve was required as a result of continuing increases in healthcare
costs,  including  prescription  drugs.  The charge was reflected in payroll and
employee benefits in the consolidated statement of operations.

     During the second half of fiscal 2000, the Company recorded charges of $2.6
million related to increased usage of employee  medical  benefits  following the
announcement  of its decision to close or downsize  certain  service areas.  The
charges represent the incremental  increase in claims  submissions that occurred
during that  period.  These  charges  were  reflected  in payroll  and  employee
benefits in the consolidated statement of operations.

     AMOUNT DUE FROM FORMER OWNER

     In connection with a February 1998 acquisition,  the seller indemnified the
collection of certain accounts receivable.  In connection with the settlement of
litigation  involving the seller during the fourth  quarter of fiscal 2001,  the
Company   agreed  to  release  the  seller  from  his   obligations   under  the
indemnification.  The  Company  recorded  a charge  of $1.0  million,  which was
reflected  in  other  operating  expenses  in  the  consolidated   statement  of
operations, related to this settlement.

     MEDICARE/MEDICAID AUDITS

     The Company  recorded a charge of $1.3 million during the fourth quarter of
fiscal  2001 for the  expected  settlement  of a Medicare  audit of an  acquired
company for periods prior to the acquisition.  This charge,  which was reflected
in other operating  expenses in the  consolidated  statement of operations,  was
taken based upon information  obtained during the fourth quarter of fiscal 2001,
which included  correspondence with the Medicare intermediary.  The $1.3 million
charge  discussed  above was reversed in the fourth quarter of fiscal 2002 after
the Company settled the audit for approximately $2,000.

     The Company recorded charges totaling $3.9 million in the second quarter of
fiscal  2000  for the  expected  settlement  of two  specific  Medicare/Medicaid
audits.  These charges,  which were reflected in other operating expenses in the
consolidated statement of operations, were taken based upon information obtained
from and negotiations  with the  intermediaries  that occurred during the second
quarter of fiscal 2000.

     RESTRUCTURING CONSULTANTS

     During the second half of the fiscal year ended June 30, 2000,  the Company
incurred costs totaling $1.1 million relating to  restructuring  consultants and
attorneys  representing  both the  Company and its  lenders in  connection  with
violations of certain financial  covenants  contained in the Company's revolving

                                       69
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

credit  agreement.  These  activities began in the third quarter of fiscal 2000.
These costs were  reflected  in other  operating  expenses  in the  consolidated
statement of operations.

     INVESTMENT WRITE-OFFS

     During  the third  quarter of the fiscal  year  ended  June 30,  2000,  the
Company  wrote-off a $1.3 million  investment in a domestic health care business
as a result of the settlement of related  litigation  which occurred during that
quarter.  Additionally,  the Company  wrote-off a $1.6 million  investment  in a
domestic  alternative  transportation  business during the fourth quarter on the
basis of financial information received from the entity during the quarter. Such
information   indicated  that  the  carrying  value  of  the  Company's  related
investment  would not be  recoverable.  These  charges  were  recorded  in other
operating expenses in the consolidated statement of operations.

     WRITE-OFF OF DISPUTED REFUNDS

     The Company  wrote-off  amounts  totaling  $1.8  million  during the fourth
quarter of the fiscal  year ended June 30, 2000  related to amounts  refunded to
Medicare  carriers  that were  expected to be returned to the Company  after the
exhaustion of administrative and appeals processes.  The determination was made,
based on information  received  through the appellate  process during the fourth
quarter,  that the Company was not  reasonably  assured of receiving the amounts
recorded.   This  charge  was  recorded  in  other  operating  expenses  in  the
consolidated statement of operations.

(10) LONG-TERM DEBT

     Notes payable and capital lease obligations consisted of the following:

                                                              JUNE 30,
                                                       ----------------------
                                                         2002        2001
                                                       ---------   ----------
                                                           (IN THOUSANDS)
     7 7/8% senior notes due 2008, net of
       discount of $148 and $173, respectively ....    $ 149,852   $  149,827
     Revolving credit facility.....................      144,369      143,042
     Note payable to former joint venture
       partner (See Note 6) .......................        4,622           --
     Capital lease obligations and other notes
       payable, at varying rates, from 3.5%
       to 12.75%, due through 2013.................        1,319        2,856
                                                       ---------   ----------
                                                         300,162      295,725
     Less: Current maturities......................       (1,633)    (294,439)
                                                       ---------   ----------
                                                       $ 298,529   $    1,286
                                                       =========   ==========

     REVOLVING CREDIT FACILITY

     In March 1998, the Company entered into a $200.0 million  revolving  credit
facility  originally  scheduled to mature March 16, 2003.  The revolving  credit
facility was unsecured and was unconditionally guaranteed on a joint and several
basis by  substantially  all of its  domestic  wholly-owned  current  and future
subsidiaries.  Interest  rates  and  availability  under  the  revolving  credit
facility depended on the Company meeting certain financial covenants,  including
a total debt leverage ratio, a total debt to  capitalization  ratio, and a fixed
charge ratio.  Revolving credit facility borrowings were initially priced at the
greater  of (i) prime rate or  Federal  Funds rate plus 0.5% plus an  applicable
margin,  or (ii) a LIBOR-based  rate. The LIBOR-based rates included a margin of
0.875% to 1.75%.

     In  December  1999,  primarily  as a result of  additional  provisions  for
doubtful  accounts,  the Company entered into noncompliance with three financial
covenants under the revolving credit facility:  total debt leverage ratio, total
debt to total  capitalization ratio and fixed charge coverage ratio. We received
a series of compliance waivers regarding these covenant  violations covering the
periods from December 31, 1999 through April 1, 2002. The waivers  provided for,

                                       70
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

among  other  things,  enhanced  reporting  and other  requirements  and that no
additional borrowings would be available under the facility.

     Pursuant to the  waivers,  as LIBOR  contracts  expired in March 2000,  all
related borrowings were priced at prime plus 0.25 percentage points and interest
became payable monthly. Pursuant to the waivers, we also were required to accrue
additional  interest  expense  at a rate of 2.0% per  annum  on the  outstanding
balance.  We  have  recognized   approximately  $6.6  million  related  to  this
additional interest expense through June 30, 2002, approximately $6.1 million of
which is included in accrued  liabilities  at June 30, 2002. In connection  with
the waivers, the Company also made unscheduled  principal payments totaling $5.2
million.

     At June 30,  2002,  the weighted  average  interest  rate on the  revolving
credit  facility,   including  the  additional  interest  described  above,  was
approximately 7.0%. There was $144.4 million outstanding on the revolving credit
facility at June 30, 2002.  Additionally,  there were $3.5 million in letters of
credit issued under the revolving credit facility outstanding on that date.

     Although the Company was not aware of any event of default under either the
terms of the  revolving  credit  facility  (as a result of the waivers) or the 7
7/8%  Senior  Notes due 2008  (the  Senior  Notes),  and  although  there was no
acceleration  of the  repayment of the revolving  credit  facility or the Senior
Notes, the balances were classified as current  liabilities at June 30, 2001 and
2000 in accordance with SFAS 78 "Classification of Obligations that are Callable
by the Creditor."

     Effective  September 30, 2002,  the Company  entered into an amended credit
facility pursuant to which,  among other things, the maturity date of the credit
facility  was  extended  to  December  31,  2004  and  any  prior  noncompliance
(including such non compliance as of June 30, 2002) was permanently waived.

     The principal terms of the amended credit facility are as follows:

     *    WAIVER. Prior noncompliance was permanently waived with respect to the
          covenant violations  described above and with respect to certain other
          noncompliance items, including non-reimbursement of approximately $2.6
          million recently drawn by beneficiaries under letters of credit issued
          under the original facility.

     *    MATURITY  DATE.  The  maturity  date of the  facility  was extended to
          December 31, 2004.

     *    PRINCIPAL   BALANCE.    Accrued   interest   (as   described   above),
          non-reimbursed  letters  of  credit  and  various  fees  and  expenses
          associated  with  the  amended  credit  facility  were  added  to  the
          principal  amount of the loan,  resulting in an outstanding  principal
          balance  as of the  effective  date of the  amendment  equal to $152.4
          million.

     *    NO REQUIRED AMORTIZATION. No principal payments are required until the
          maturity date of the facility.

     *    INTEREST  RATE.  The  interest  rate was  increased to LIBOR plus 7.0%
          (8.8% as of the effective date of the amendment), payable monthly. (By
          comparison,  the effective  interest rate  (including the 2.0% accrued
          interest   described  above)   applicable  to  the  original  facility
          immediately prior to the effective date of the amendment was 7.0%.)

     *    FINANCIAL COVENANTS.  The amended facility includes the same financial
          covenants  as were  included in the  original  credit  facility,  with
          compliance  levels under such covenants  adjusted to levels consistent
          with the Company's current business levels and outlook.  The covenants
          include (i) total debt leverage ratio  (initially  set at 7.48),  (ii)
          minimum  tangible  net  worth  (initially  set  at  a  $230.1  million
          deficit),  (iii) fixed charge coverage ratio  (initially set at 0.99),
          (iv)  limitation  on capital  expenditures  of $11  million per fiscal
          year; and (v) limitation on operating leases during any period of four
          fiscal quarters to 3.10% of consolidated net revenues.  The compliance
          levels for covenants (i) through (iii) above are set at varying levels
          on  a  quarterly  basis.  Compliance  is  tested  quarterly  based  on
          annualized or year-to-date results as applicable.

                                       71
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     *    OTHER  COVENANTS.   The  amended  credit  facility   includes  various
          non-financial  covenants  equivalent in scope to those included in the
          original  facility.  The covenants include  restrictions on additional
          indebtedness,  liens,  investments,  mergers and  acquisitions,  asset
          sales,  and  other  matters.  The  amended  credit  facility  includes
          extensive financial  reporting  obligations and provides that an event
          of default  occurs  should we lose  customer  contracts  in any fiscal
          quarter with an aggregate  EBITDA  contribution  of $5 million or more
          (net of anticipated contribution from new contracts).

     *    EXISTING LETTERS OF CREDIT. Pursuant to the amended facility,  letters
          of credit issued  pursuant to the original  credit  agreement  will be
          reissued  or  extended,  to a maximum of $3.5  million,  for letter of
          credit fees aggregating 1 7/8% per annum. A third letter of credit, in
          the  amount  of  $2.6  million  which  previously  was  drawn  by  its
          beneficiary,  will be  reissued  subject to  application  of the funds
          originally drawn in reduction of the principal balance of the facility
          and payment of a letter of credit fee equal to 7% per annum.

     *    EQUITY INTEREST. In consideration of the amended facility, the Company
          issued  shares  of its  Series B  Convertible  Preferred  Stock to the
          participants   in  the  credit   facility.   The  preferred  stock  is
          convertible into 2,115,490 common shares (10% of the sum of the common
          shares outstanding on a diluted basis, as defined). Because sufficient
          common shares are not currently  available to permit  conversion,  the
          Company intends to seek stockholder  approval to amend its certificate
          of incorporation to authorize additional common shares.  Conversion of
          the  preferred  shares  occurs  automatically  upon  approval  by  the
          Company's   stockholders   of  sufficient   common  shares  to  permit
          conversion.  Should the Company's  stockholders fail to approve such a
          proposal by December 31, 2004,  the Company will be required to redeem
          the preferred stock for a price equal to the greater of $15 million or
          the value of the common shares into which the  preferred  shares would
          otherwise  have been  convertible.  In addition,  should the Company's
          stockholders  fail to approve  such a proposal,  the  preferred  stock
          enjoys a preference  upon a sale of the Company,  a sale of its assets
          and in certain other circumstances; this preference equals the greater
          of (i) the value of the common shares into which the  preferred  stock
          would  otherwise  have been  convertible  or (ii) $10  million,  $12.5
          million or $15  million  depending  on whether  the  triggering  event
          occurs  prior to January 31,  2003,  December 31, 2003 or December 31,
          2004,  respectively.  At the  election  of the holder,  the  preferred
          shares  carry  voting  rights as if such  shares were  converted  into
          common  shares.  The  preferred  shares  do not bear a  dividend.  The
          preferred  shares (and common shares  issuable upon  conversion of the
          preferred  shares) are entitled to certain  registration  rights.  The
          terms of the preferred shares limit the Company from issuing senior or
          pari  passu  preferred   shares  and  from  paying  dividends  on,  or
          redeeming, shares of junior stock.

     Due to the lack of required principal  amortization and long-term nature of
this amendment,  the outstanding balance on the credit facility is classified as
long  term  debt  in  the  consolidated  balance  sheet  as of  June  30,  2002.
Additionally, as we are now in compliance with the terms of the credit facility,
we have also classified the Senior Notes as long-term debt as of June 30, 2002.

     7 7/8% SENIOR NOTES DUE 2008

     In March 1998, the Company issued $150.0 million of its 7 7/8% Senior Notes
due 2008 (the Senior Notes) under Rule 144A under the Securities Act of 1933, as
amended   (Securities   Act).   Interest  under  the  Senior  Notes  is  payable
semi-annually  on  September  15 and  March  15,  and the  Senior  Notes are not
callable  until March 2003  subject to the terms of the  Indenture.  The Company
incurred expenses related to the offering of approximately $5.3 million and will
amortize these costs over the life of the Senior Notes.  The Company  recorded a
$258,000  discount on the Senior Notes and will  amortize this discount over the
life of the Senior Notes. In April 1998, we filed a registration statement under
the  Securities  Act  relating to an exchange  offer for the Senior  Notes.  The
registration  became  effective  on May 14,  1998.  The Senior Notes are general
unsecured   obligations  of  the  Company  and  are  fully  and  unconditionally
guaranteed  on a joint and several  basis by  substantially  all of its domestic
wholly-owned current and future subsidiaries (the Guarantors).  The Senior Notes
contain certain  covenants that, among other things,  limit our ability to incur
certain   indebtedness,   sell  assets,   or  enter  into  certain   mergers  or
consolidations.

                                       72
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

    The Company  does not believe  that the separate  financial  statements  and
related footnote  disclosures  concerning the Guarantors  provide any additional
information that would be material to investors  making an investment  decision.
Consolidating financial information for the Company (the Parent), the Guarantors
and the Company's remaining subsidiaries (the Non-Guarantors) is as follows:

                                       73
<PAGE>
                             RURAL/METRO CORPORATION

                           CONSOLIDATING BALANCE SHEET
                               AS OF JUNE 30, 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               PARENT       GUARANTORS    NON-GUARANTORS   ELIMINATIONS     TOTAL
                                                              ---------     ----------    --------------   ------------   ---------
<S>                                                          <C>            <C>              <C>               <C>       <C>
ASSETS
CURRENT ASSETS
   Cash .................................................     $      --      $   9,424       $     404       $      --    $   9,828
   Accounts receivable, net .............................            --         93,579           5,536              --       99,115
   Inventories ..........................................            --         12,178              42              --       12,220
   Prepaid expenses and other ...........................           582          8,864             151              --        9,597
                                                              ---------      ---------       ---------       ---------    ---------
      Total current assets ..............................           582        124,045           6,133              --      130,760

PROPERTY AND EQUIPMENT, net .............................            --         47,972             560              --       48,532

GOODWILL ................................................            --         41,167              77              --       41,244

DUE FROM (TO) AFFILIATES ................................       267,612       (215,164)        (52,448)             --           --

OTHER ASSETS ............................................         2,449         12,163           2,290              --       16,902

INVESTMENT IN SUBSIDIARIES ..............................      (131,570)            --              --         131,570           --
                                                              ---------      ---------       ---------       ---------    ---------

                                                              $ 139,073      $  10,183       $ (43,388)      $ 131,570    $ 237,438
                                                              =========      =========       =========       =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
   Accounts payable .....................................     $      --      $  11,049       $     912       $      --    $  11,961
   Accrued liabilities ..................................        10,171         61,280           2,268              --       73,719
   Deferred subscription fees ...........................            --         15,409              --              --       15,409
   Current portion of long-term debt ....................            --          1,620              13              --        1,633
                                                              ---------      ---------       ---------       ---------    ---------
      Total current liabilities .........................        10,171         89,358           3,193              --      102,722

LONG-TERM DEBT, net of current portion ..................       294,221          4,308              --              --      298,529

OTHER LIABILITIES .......................................            --            477              --              --          477

DEFERRED INCOME TAXES ...................................            --          1,814          (1,164)             --          650
                                                              ---------      ---------       ---------       ---------    ---------
      Total liabilities .................................       304,392         95,957           2,029              --      402,378
                                                              ---------      ---------       ---------       ---------    ---------
MINORITY INTEREST .......................................            --             --              --             379          379
                                                              ---------      ---------       ---------       ---------    ---------
STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock .........................................           159             82              17             (99)         159
   Additional paid-in capital ...........................       138,470         54,622          34,942         (89,564)     138,470
   Retained earnings (accumulated deficit) ..............      (313,025)      (140,478)        (90,692)        231,170     (313,025)
   Accumulated other comprehensive income (loss) ........        10,316             --          10,316         (10,316)      10,316
   Treasury stock .......................................        (1,239)            --              --              --       (1,239)
                                                              ---------      ---------       ---------       ---------    ---------
      Total stockholders' equity (deficit) ..............      (165,319)       (85,774)        (45,417)        131,191     (165,319)
                                                              ---------      ---------       ---------       ---------    ---------

                                                              $ 139,073      $  10,183       $ (43,388)      $ 131,570    $ 237,438
                                                              =========      =========       =========       =========    =========
</TABLE>

                                       74
<PAGE>
                             RURAL/METRO CORPORATION

                           CONSOLIDATING BALANCE SHEET
                               AS OF JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               PARENT       GUARANTORS   NON-GUARANTORS    ELIMINATIONS     TOTAL
                                                              ---------     ----------   --------------    ------------   ---------
<S>                                                           <C>            <C>            <C>              <C>          <C>
ASSETS
CURRENT ASSETS
   Cash .................................................     $      --      $   6,763      $   1,936        $      --    $   8,699
   Accounts receivable, net .............................            --         93,471          9,789               --      103,260
   Inventories ..........................................            --         13,093             80               --       13,173
   Prepaid expenses and other ...........................           531          5,881            341               --        6,753
                                                              ---------      ---------      ---------        ---------    ---------
      Total current assets ..............................           531        119,208         12,146               --      131,885

PROPERTY AND EQUIPMENT, net .............................            --         57,271            728               --       57,999

GOODWILL ................................................            --         90,680             77               --       90,757

DUE FROM (TO) AFFILIATES ................................       294,729       (240,105)       (54,624)              --           --

OTHER ASSETS ............................................         2,356         11,684          3,853               --       17,893

INVESTMENT IN SUBSIDIARIES ..............................      (127,702)            --             --          127,702           --
                                                              ---------      ---------      ---------        ---------    ---------

                                                              $ 169,914      $  38,738      $ (37,820)       $ 127,702    $ 298,534
                                                              =========      =========      =========        =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
   Accounts payable .....................................     $      --      $   9,478      $   3,437        $      --    $  12,915
   Accrued liabilities ..................................         7,571         72,119         15,700               --       95,390
   Deferred subscription fees income ....................            --         14,707             --               --       14,707
   Current portion of long-term debt ....................       292,869          1,315            255               --      294,439
                                                              ---------      ---------      ---------        ---------    ---------
      Total current liabilities .........................       300,440         97,619         19,392               --      417,451

LONG-TERM DEBT, net of current portion ..................            --          1,272             14               --        1,286

OTHER LIABILITIES .......................................            --            994             --               --          994

DEFERRED INCOME TAXES ...................................            --          2,114         (1,164)              --          950
                                                              ---------      ---------      ---------        ---------    ---------
      Total liabilities .................................       300,440        101,999         18,242               --      420,681
                                                              ---------      ---------      ---------        ---------    ---------
MINORITY INTEREST .......................................            --             --             --            8,379        8,379
                                                              ---------      ---------      ---------        ---------    ---------
STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock .........................................           152             82             17              (99)         152
   Additional paid-in capital ...........................       137,948         54,622         34,942          (89,564)     137,948
   Retained earnings (accumulated deficit) ..............      (267,401)      (117,965)       (91,035)         209,000     (267,401)
   Accumulated other comprehensive income (loss) ........            14             --             14              (14)          14
   Treasury stock .......................................        (1,239)            --             --               --       (1,239)
                                                              ---------      ---------      ---------        ---------    ---------
      Total stockholders' equity (deficit) ..............      (130,526)       (63,261)       (56,062)         119,323     (130,526)
                                                              ---------      ---------      ---------        ---------    ---------

                                                              $ 169,914      $  38,738      $ (37,820)       $ 127,702    $ 298,534
                                                              =========      =========      =========        =========    =========
</TABLE>

                                       75
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   PARENT      GUARANTORS  NON-GUARANTORS   ELIMINATIONS    TOTAL
                                                                  ---------    ----------  --------------   ------------  ---------
<S>                                                               <C>           <C>           <C>             <C>         <C>
NET REVENUE ..................................................    $      --     $ 460,698     $  36,340       $      --   $ 497,038
                                                                  ---------     ---------     ---------       ---------   ---------
OPERATING EXPENSES
Payroll and employee benefits ................................           --       261,686        25,621              --     287,307
Provision for doubtful accounts ..............................           --        69,093           807              --      69,900
Depreciation .................................................           --        15,085            70              --      15,155
Amortization of intangibles ..................................           --            43         1,012              --       1,055
Other operating expenses .....................................           --        90,167         7,473              --      97,640
Contract termination costs and related asset impairment ......           --            (7)         (100)             --        (107)
Restructuring charge and other ...............................           --          (718)           --              --        (718)
                                                                  ---------     ---------     ---------       ---------   ---------
      Total expenses .........................................           --       435,349        34,883              --     470,232
                                                                  ---------     ---------     ---------       ---------   ---------

OPERATING INCOME .............................................           --        25,349         1,457              --      26,806
Income from wholly-owned subsidiaries ........................       27,352            --            --         (27,352)         --
Interest expense, net ........................................      (23,463)         (404)       (1,109)             --     (24,976)
Other income (expense), net ..................................           --            --            --               9           9
                                                                  ---------     ---------     ---------       ---------   ---------
INCOME BEFORE INCOME TAXES, AND
   CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE ......................................        3,889        24,945           348         (27,343)      1,839

INCOME TAX (PROVISION) BENEFIT ...............................           --         2,055            (5)             --       2,050
                                                                  ---------     ---------     ---------       ---------   ---------

INCOME (LOSS) BEFORE CUMULATIVE
   EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ..................        3,889        27,000           343         (27,343)      3,889


CUMULATIVE EFFECT OF CHANGE IN
    ACCOUNTING PRINCIPLE .....................................      (49,513)      (49,513)           --          49,513     (49,513)
                                                                  ---------     ---------     ---------       ---------   ---------

NET INCOME (LOSS) ............................................    $ (45,624)    $ (22,513)    $     343       $       9   $ (45,624)
                                                                  =========     =========     =========       =========   =========
</TABLE>

                                       76
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            PARENT        GUARANTORS    NON-GUARANTORS   ELIMINATIONS       TOTAL
                                                           ---------      ----------    --------------   ------------     ---------
<S>                                                        <C>             <C>             <C>             <C>            <C>
NET REVENUE .........................................      $      --       $ 445,892       $  58,424       $      --      $ 504,316
                                                           ---------       ---------       ---------       ---------      ---------
OPERATING EXPENSES
   Payroll and employee benefits ....................             --         261,179          39,876              --        301,055
   Provision for doubtful accounts ..................             --          96,253           6,217              --        102,470
   Depreciation .....................................             --          19,043           2,766              --         21,809
   Amortization of intangibles ......................             --           5,073           2,279              --          7,352
   Other operating expenses .........................             --         117,644          24,365              --        142,009
   Asset impairment charges .........................             --          32,338          62,015              --         94,353
   Loss on disposition of clinic operations .........             --              --           9,374              --          9,374
   Contract termination costs and related
asset
     impairment .....................................             --           9,256              --              --          9,256
   Restructuring charge and other ...................             --           9,091              --              --          9,091
                                                           ---------       ---------       ---------       ---------      ---------
         Total expenses .............................             --         549,877         146,892              --        696,769
                                                           ---------       ---------       ---------       ---------      ---------

OPERATING LOSS ......................................             --        (103,985)        (88,468)             --       (192,453)
Loss from wholly-owned subsidiaries .................       (197,769)             --              --         197,769             --
Interest expense, net ...............................        (28,962)            (17)         (1,022)             --        (30,001)
Other income (expense), net .........................             --          (4,046)             --           1,644         (2,402)
                                                           ---------       ---------       ---------       ---------      ---------

LOSS BEFORE INCOME TAXES ............................       (226,731)       (108,048)        (89,490)        199,413       (224,856)

INCOME TAX (PROVISION) BENEFIT ......................             --          (3,282)          1,407              --         (1,875)
                                                           ---------       ---------       ---------       ---------      ---------
NET LOSS ............................................      $(226,731)      $(111,330)      $ (88,083)      $ 199,413      $(226,731)
                                                           =========       =========       =========       =========      =========
</TABLE>

                                       77
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 PARENT      GUARANTORS   NON-GUARANTORS   ELIMINATIONS     TOTAL
                                                                ---------    ----------   --------------   ------------   ---------
<S>                                                             <C>           <C>            <C>           <C>            <C>
NET REVENUE .................................................   $      --     $ 485,376      $  84,698              --    $ 570,074
                                                                ---------     ---------      ---------       ---------    ---------
OPERATING EXPENSES
Payroll and employee benefits ...............................          --       272,944         50,341              --      323,285
Provision for doubtful accounts .............................          --        80,823         14,800              --       95,623
Provision for doubtful accounts -- change in accounting
 estimate ...................................................          --        65,000             --              --       65,000
Depreciation ................................................          --        22,068          2,941              --       25,009
Amortization of intangibles .................................          --         6,220          2,467              --        8,687
Other operating expenses ....................................          --       106,904         20,839              --      127,743
Restructuring charge and other ..............................          --        32,182          1,865              --       34,047
                                                                ---------     ---------      ---------       ---------    ---------
      Total expenses ........................................          --       586,141         93,253              --      679,394
                                                                ---------     ---------      ---------       ---------    ---------

OPERATING LOSS ..............................................          --      (100,765)        (8,555)             --     (109,320)
Loss from wholly-owned subsidiaries .........................     (80,698)           --             --          80,698           --
Interest expense, net .......................................     (25,045)        1,125         (2,019)             --      (25,939)
Other income (expense), net .................................          --            --             --           2,890        2,890
                                                                ---------     ---------      ---------       ---------    ---------

LOSS BEFORE INCOME TAXES, EXTRAORDINARY
   LOSS AND CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE .....................................    (105,743)      (99,640)       (10,574)         83,588     (132,369)

INCOME TAX BENEFIT ..........................................       6,211        24,046          2,580              --       32,837
                                                                ---------     ---------      ---------       ---------    ---------
LOSS BEFORE EXTRAORDINARY LOSS AND
   CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE .....................................     (99,532)      (75,594)        (7,994)         83,588      (99,532)

EXTRAORDINARY LOSS ON EXPROPRIATION
OF CANADIAN AMBULANCE SERVICE LICENSES ......................      (1,200)           --         (1,200)          1,200       (1,200)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE ...................................................        (541)         (541)            --             541         (541)
                                                                ---------     ---------      ---------       ---------    ---------
NET LOSS ....................................................   $(101,273)    $ (76,135)     $  (9,194)      $  85,329    $(101,273)
                                                                =========     =========      =========       =========    =========
</TABLE>

                                       78
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 2002
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               PARENT      GUARANTORS    NON-GUARANTORS   ELIMINATIONS     TOTAL
                                                              --------     ----------    --------------   ------------    --------
<S>                                                           <C>           <C>             <C>             <C>           <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net loss ...............................................    $(45,624)     $(22,513)       $    343        $ 22,170      $(45,624)
  Adjustments to reconcile net loss to cash provided
   by (used in) operations --
    Cumulative effect of a change in accounting
      principle ..........................................          --        49,513              --              --        49,513
    Depreciation and amortization ........................          --        15,128           1,082              --        16,210
    (Gain) loss on sale of property and equipment ........          --           152            (437)             --          (285)
    Provision for doubtful accounts ......................          --        69,093             807              --        69,900
    Deferred income taxes ................................          --          (300)             --              --          (300)
    Equity earnings net of distributions received ........          --          (249)             --              --          (249)
    Undistributed earnings of minority stockholder .......          --            --              --              (9)           (9)
    Amortization of discount on Senior Notes .............          26            --              --              --            26
    Non-cash stock compensation expense ..................          73            --              --              --            73
  Change in assets and liabilities --
    (Increase) decrease in accounts receivable ...........          --       (69,202)          1,880              --       (67,322)
    Decrease in inventories ..............................          --           915              33              --           948
    (Increase) decrease in prepaid expenses and other ....         (51)       (2,983)             16              --        (3,018)
    Increase in other assets .............................         (93)         (631)         (1,171)             --        (1,895)
    (Increase) decrease in due to/from affiliates ........      43,574       (19,540)         (2,175)        (21,859)           --
    Increase (decrease) in accounts payable ..............          --         1,571            (234)             --         1,337
    Increase (decrease) in accrued liabilities and
     other liabilities ...................................       2,600       (11,357)         (1,922)             --       (10,679)
    Increase in non-refundable subscription
     fee income ..........................................          --           702              --              --           702
                                                              --------      --------        --------        --------      --------
         Net cash provided by (used in) operating
          activities .....................................         505        10,299          (1,778)            302         9,328
                                                              --------      --------        --------        --------      --------
CASH FLOW FROM FINANCING ACTIVITIES
  Repayments on revolving credit facility, net ...........      (1,263)           --              --              --        (1,263)
  Repayment of debt and capital lease obligations ........          --        (1,700)           (162)             --        (1,862)
  Issuance of common stock ...............................         456            --              --              --           456
                                                              --------      --------        --------        --------      --------
         Net cash used in financing activities ...........        (807)       (1,700)           (162)             --        (2,669)
                                                              --------      --------        --------        --------      --------
CASH FLOW FROM INVESTING ACTIVITIES
  Capital expenditures ...................................          --        (6,360)           (494)             --        (6,854)
  Proceeds from the sale of property and equipment .......          --           422             600              --         1,022
                                                              --------      --------        --------        --------      --------
         Net cash provided by (used in) investing
          activities .....................................          --        (5,938)            106              --        (5,832)
                                                              --------      --------        --------        --------      --------

EFFECT OF CURRENCY EXCHANGE RATE CHANGE ..................         302            --             302            (302)          302
                                                              --------      --------        --------        --------      --------

INCREASE (DECREASE) IN CASH ..............................          --         2,661          (1,532)             --         1,129

CASH, beginning of year ..................................          --         6,763           1,936              --         8,699
                                                              --------      --------        --------        --------      --------

CASH, end of year ........................................    $     --      $  9,424        $    404        $     --      $  9,828
                                                              ========      ========        ========        ========      ========
</TABLE>

                                       79
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               PARENT      GUARANTORS    NON-GUARANTORS   ELIMINATIONS      TOTAL
                                                              ---------    ----------    --------------   ------------    ---------
<S>                                                           <C>           <C>             <C>             <C>           <C>
CASH FLOW FROM OPERATING ACTIVITIES
   Net loss ..............................................    $(226,731)    $(111,330)      $ (88,083)      $ 199,413     $(226,731)
   Adjustments to reconcile net loss to cash
    provided by (used in) operations --
    Non-cash portion of restructuring charge .............           --         4,092              --              --         4,092
    Non-cash portion of contract termination .............           --         8,086              --              --         8,086
    Asset impairment charge ..............................           --        32,339          62,014              --        94,353
    Loss on disposition of clinic operations .............           --            --           9,374              --         9,374
    Depreciation and amortization ........................           --        24,116           5,045              --        29,161
    (Gain) loss on sale of property and equipment ........           --          (406)            (21)             --          (427)
    Provision for doubtful accounts ......................           --        96,253           6,217              --       102,470
    Deferred income taxes ................................           --         2,839          (1,889)             --           950
    Equity earnings net of distributions received ........           --           118              --              --           118
    Undistributed earnings of minority stockholder .......           --            --              --          (1,026)        1,026
    Amortization of discount on Senior Notes .............           26            --              --              --            26
    Non-cash charge related to joint venture .............           --            --              --           4,045         4,045
   Change in assets and liabilities --
    (Increase) decrease in accounts receivable ...........           --       (62,936)            837              --       (62,099)
    Decrease in inventories ..............................           --         4,925             886              --         5,811
    Decrease in prepaid expenses and other ...............           --           758             314              --         1,072
    (Increase) decrease in other assets ..................        1,030          (726)          2,159              --         2,463
    (Increase) decrease in due to/from affiliates ........      227,185       (20,236)         (4,782)       (202,167)           --
    Decrease in accounts payable .........................           --        (2,445)           (209)             --        (2,654)
    Increase in accrued liabilities and other
     liabilities .........................................        1,642        29,368           8,047              --        39,057
    Decrease in deferred subscription fees ...............           --          (264)            (18)             --          (282)
                                                              ---------     ---------       ---------       ---------     ---------
        Net cash provided by (used in) operating
         activities ......................................        3,152         4,551            (109)            265         7,859
                                                              ---------     ---------       ---------       ---------     ---------

CASH FLOW FROM FINANCING ACTIVITIES
   Borrowings (repayments) on revolving credit facility,
    net ..................................................       (3,765)           --              --              --        (3,765)
   Repayment of debt and capital lease obligations .......           --        (2,244)           (529)             --        (2,773)
   Borrowings under capital lease obligations ............           --           283              --              --           283
   Issuance of common stock ..............................          348            --              --              --           348
                                                              ---------     ---------       ---------       ---------     ---------
        Net cash used in financing activities ............       (3,417)       (1,961)           (529)             --        (5,907)
                                                              ---------     ---------       ---------       ---------     ---------

CASH FLOW FROM INVESTING ACTIVITIES
   Capital expenditures ..................................           --        (6,771)            997              --        (5,774)
   Proceeds from the sale of property and equipment ......           --         1,909              60              --         1,969
                                                              ---------     ---------       ---------       ---------     ---------
        Net cash provided by (used in) investing
         activities ......................................           --        (4,862)          1,057              --        (3,805)
                                                              ---------     ---------       ---------       ---------     ---------

EFFECT OF CURRENCY EXCHANGE RATE CHANGE ..................          265            --             265            (265)          265
                                                              ---------     ---------       ---------       ---------     ---------

INCREASE (DECREASE) IN CASH ..............................           --        (2,272)            684              --        (1,588)

CASH, beginning of year ..................................           --         9,035           1,252              --        10,287
                                                              ---------     ---------       ---------       ---------     ---------

CASH, end of year ........................................    $      --     $   6,763       $   1,936       $      --     $   8,699
                                                              =========     =========       =========       =========     =========
</TABLE>

                                       80
<PAGE>
                             RURAL/METRO CORPORATION

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                PARENT      GUARANTORS    NON-GUARANTORS   ELIMINATIONS     TOTAL
                                                               ---------    ----------    --------------   ------------   ---------
<S>                                                            <C>          <C>              <C>             <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES
  Net loss .................................................   $(101,273)   $ (76,135)      $  (9,194)       $  85,329    $(101,273)
  Adjustments to reconcile net loss to cash provided
   by (used in) operations --
    non-cash portion of restructuring charge ...............          --       28,873              --               --       28,873
    Extraordinary loss on expropriation of Canadian
      ambulance service licenses ...........................          --           --           1,200               --        1,200
    Cumulative effect of a change in accounting
      principle ............................................          --          541              --               --          541
    Depreciation and amortization ..........................          --       28,288           5,408               --       33,696
    (Gain) loss on sale of property and equipment ..........          --         (175)             (9)              --         (184)
    Provision for doubtful accounts ........................          --      145,823          14,800               --      160,623
    Decrease in deferred income taxes ......................          --       (9,198)           (240)              --       (9,438)
    Undistributed earnings of public/private
      partnership ..........................................          --          587              --               --          587
    Undistributed earnings of minority stockholder .........          --           --              --           (2,890)      (2,890)
    Amortization of discount on Senior Notes ...............          26           --              --               --           26
  Change in assets and liabilities --
    Increase in accounts receivable ........................          --     (107,911)        (11,308)              --     (119,219)
    (Increase) decrease in inventories .....................          --       (3,451)             81               --       (3,370)
    Decrease in prepaid expenses and other .................          --        1,791             424               --        2,215
    (Increase) decrease in other assets ....................         783       (1,052)           (191)              --         (460)
    (Increase) decrease in due to/from affiliates ..........      64,300       10,932           7,167          (82,399)          --
    Increase (decrease) in accounts payable ................          --          822          (2,491)              --       (1,669)
    Increase (decrease) in accrued liabilities and other
     liabilities ...........................................       2,162        1,707          (4,758)              --         (889)
    Increase (decrease) in deferred subscription fees ......          --           81              (1)              --           80
                                                               ---------    ---------       ---------        ---------    ---------
         Net cash provided by (used in) operating
          activities .......................................     (34,002)      21,523             888               40      (11,551)
                                                               ---------    ---------       ---------        ---------    ---------
CASH FLOW FROM FINANCING ACTIVITIES
  Borrowings on revolving credit facility, net .............      33,307           --              --               --       33,307
  Repayment of debt and capital lease obligations ..........          --       (3,993)         (1,711)              --       (5,704)
  Issuance of common stock .................................         655           --              --               --          655
                                                               ---------    ---------       ---------        ---------    ---------
         Net cash provided by (used in) financing
          activities .......................................      33,962       (3,993)         (1,711)              --       28,258
                                                               ---------    ---------       ---------        ---------    ---------
CASH FLOW FROM INVESTING ACTIVITIES
  Proceeds from expropriation of Canadian ambulance
   service licenses ........................................          --           --           2,191               --        2,191
  Capital expenditures .....................................          --      (15,174)         (1,957)              --      (17,131)
  Proceeds from the sale of property and equipment .........          --        1,300              --               --        1,300
                                                               ---------    ---------       ---------        ---------    ---------
         Net cash provided by (used in) investing
          activities .......................................          --      (13,874)            234               --      (13,640)
                                                               ---------    ---------       ---------        ---------    ---------
EFFECT OF CURRENCY EXCHANGE RATE
 CHANGE ....................................................          40           --              40              (40)          40
                                                               ---------    ---------       ---------        ---------    ---------

INCREASE (DECREASE) IN CASH ................................          --        3,656            (549)              --        3,107

CASH, beginning of year ....................................          --        5,379           1,801               --        7,180
                                                               ---------    ---------       ---------        ---------    ---------

CASH, end of year ..........................................   $      --    $   9,035       $   1,252        $      --    $  10,287
                                                               =========    =========       =========        =========    =========
</TABLE>

                                       81
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     DEBT MATURITIES

     Aggregate  maturities on long-term debt for each of the fiscal years ending
June 30 are as follows (in thousands):

          2003...................................       $   1,633
          2004...................................           1,255
          2005...................................         145,797
          2006...................................           1,473
          2007...................................              11
          Thereafter.............................         149,993
                                                        ---------
                                                        $ 300,162
                                                        =========

     The Company incurred interest expense of approximately $25.6 million, $30.5
million and $26.5  million and paid  interest of  approximately  $21.9  million,
$29.0 million and $24.2 million in the years ended June 30, 2002, 2001 and 2000,
respectively.

     The Company had outstanding  letters of credit totaling  approximately $3.5
million and $6.5 million at June 30, 2002 and 2001 for insurance and  guarantees
under contracts.

(11) INCOME TAXES

     The geographic sources of income (loss) before income taxes,  extraordinary
loss and cumulative effect of change in accounting principle were as follows:

                                                     YEAR ENDED JUNE 30,
                                             ----------------------------------
                                               2002        2001          2000
                                             ---------   ---------    ---------
                                                      (IN THOUSANDS)
     United States .......................   $     395   $(177,571)   $(131,508)
     Foreign (primarily Argentina) .......       1,444     (47,285)        (861)
                                             ---------   ---------    ---------
     Income (loss) before income taxes,
     extraordinary loss and cumulative
     effect of change in accounting
     principle ...........................   $   1,839   $(224,856)   $(132,369)
                                             =========   =========    =========

     The components of the income tax (provision) benefit were as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED JUNE 30,
                                                     --------------------------------
                                                       2002        2001        2000
                                                     --------    --------    --------
                                                              (IN THOUSANDS)
<S>                                                  <C>         <C>         <C>
     Current
        U.S. Federal .............................   $     --    $     --    $     --
        State ....................................       (130)       (637)       (750)
        Foreign (primarily Argentina) ............       (470)        (48)     (1,560)
                                                     --------    --------    --------
             Total current (provision) benefit ...       (600)       (685)     (2,310)
                                                     --------    --------    --------

     Deferred
        U.S. Federal .............................      2,650        (500)     32,787
        Foreign (primarily Argentina) ............         --        (690)      2,360
                                                     --------    --------    --------
             Total deferred (provision) benefit ..      2,650      (1,190)     35,147
                                                     --------    --------    --------

             Total (provision) benefit ...........   $  2,050    $ (1,875)   $ 32,837
                                                     ========    ========    ========
</TABLE>

                                       82
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     The income tax benefit in 2002 included  federal income tax refunds of $0.6
million resulting from recently enacted  legislation that allowed the Company to
carry  back a portion  of its net  operating  losses  to prior  years as well as
refunds of $1.6  million  applicable  to prior years for which  recognition  was
deferred until receipt.

     The income tax  (provision)  benefit  differs  from the amount  computed by
applying the  statutory  U.S.  federal  income tax rate of 35% to income  before
income taxes,  extraordinary  loss and cumulative effect of change in accounting
principle as follows:

<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30,
                                                      --------------------------------
                                                        2002        2001        2000
                                                      --------    --------    --------
                                                               (IN THOUSANDS)
<S>                                                   <C>         <C>         <C>
     U.S. Federal income tax (provision) benefit
       at statutory rate ..........................   $   (644)   $ 78,700    $ 46,329
     State taxes, net of federal benefit ..........        (85)      3,886       3,230
     Amortization of nondeductible goodwill .......         --      (5,660)     (3,792)
     Change in valuation allowance ................      2,292     (77,853)    (12,832)
     Other, net ...................................        487        (948)        (98)
                                                      --------    --------    --------
     (Provision for) benefit from income taxes ....   $  2,050    $ (1,875)   $ 32,837
                                                      ========    ========    ========
</TABLE>

    The following table  summarizes the components of the Company's net deferred
tax liability as of June 30, 2002 and 2001.  The Company has revised the amounts
relating to certain of its deferred tax assets,  deferred  tax  liabilities  and
valuation allowance as of June 30, 2001;  however,  such revisions had no impact
on the net deferred tax liability as of that date. These revisions have not been
audited by any independent accountants.

                                                               JUNE 30,
                                                        ----------------------
                                                          2002          2001
                                                        ---------    ---------
                                                            (IN THOUSANDS)
     Deferred tax assets:
        Net operating loss carryforwards ...........    $  57,326    $  44,673
        Restructuring charge .......................       31,372       32,636
        Insurance claim reserves ...................       12,639       12,384
        Foreign items ..............................        2,986        2,300
        Compensation and benefits ..................        2,480        1,671
        Other ......................................        1,291        1,638
                                                        ---------    ---------
          Gross deferred tax assets ................      108,094       95,302
                                                        ---------    ---------
     Deferred tax liabilities:
        Partnership losses .........................      (23,978)     (20,983)
        Accelerated depreciation and amortization...       (8,191)      (3,703)
        Accounts receivable valuation ..............       (2,319)       3,783
        Other ......................................       (1,441)      (1,350)
                                                        ---------    ---------
          Gross deferred tax liabilities ...........      (35,929)     (22,253)
                                                        ---------    ---------

     Net deferred tax assets before valuation
      allowance ....................................       72,165       73,049

     Less: Valuation allowance .....................      (72,815)     (73,999)
                                                        ---------    ---------

     Net deferred liability ........................    $    (650)   $    (950)
                                                        =========    =========

     The  Company  maintains a  valuation  allowance  for the portion of its net
deferred  tax  assets  for  which it is more  likely  than not that the  related
benefits  will not be realized.  The  valuation  allowance,  which totaled $72.8

                                       83
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

million at June 30, 2002 and $74.0 at June 30, 2001, was based upon management's
analysis of available information including the net operating losses experienced
in recent years. The Company will begin to release the valuation  allowance when
it is more likely than not that the deferred tax asset will be realized.

     Cash payments (refunds) for income taxes were ($2.2) million,  $1.9 million
and $2.4  million  during  the  years  ended  June  30,  2002,  2001  and  2000,
respectively.

(12) STOCKHOLDERS' EQUITY

     STOCKHOLDERS' RIGHTS PLAN

     In August 1995, the Company's  Board of Directors  adopted a  stockholders'
rights plan,  which  authorized  the  distribution  of one right to purchase one
one-thousandth  of a share  of $0.01  par  value  Series A Junior  Participating
Preferred Stock (a Right) for each share of common stock of the Company.  Rights
will become  exercisable  following  the tenth day (or such later date as may be
determined  by the Board of  Directors)  after a person  or group  (a)  acquires
beneficial  ownership  of 15% or  more  of the  Company's  common  stock  or (b)
announces a tender or exchange offer,  the consummation of which would result in
ownership by a person or group of 15% or more of the Company's common stock.

     Upon  exercise,  each Right will  entitle the holder  (other than the party
seeking to acquire  control of the Company) to acquire shares of common stock of
the  Company  or,  in  certain  circumstances,  such  acquiring  person at a 50%
discount  from  market  value.  The  Rights  may be  terminated  by the Board of
Directors  at any time prior to the date they become  exercisable  at a price of
$0.01 per Right; thereafter, they may be redeemed for a specified period of time
at $0.01 per Right.

(13) EMPLOYEE BENEFIT PLANS

     EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

     The Company  established  the ESOP in 1979 and makes  contributions  to the
ESOP at the discretion of the Board of Directors. No discretionary contributions
were  approved for the years ended June 30, 2002,  2001 and 2000.  The ESOP held
approximately 5% of the outstanding  common stock of the Company for the benefit
of all  participants,  as of June 30, 2002 and 2001,  respectively.  The ESOP is
administered by the ESOP's Advisory Committee, consisting of certain officers of
the Company.

     In July 1999,  the  Company's  Board of Directors  approved an amendment to
"freeze" the ESOP,  effective June 30, 1999 with respect to all employees  other
than members of collective  bargaining  agreements that include participation in
the ESOP. All participants'  accounts were fully vested as of June 30, 1999. Due
to the decrease in the market value of the Company's  common stock during fiscal
2000, the ESOP's assets were  insufficient to cover  participant  balances.  The
Company  made an  additional  contribution  of $250,000 to the ESOP to cover the
shortfall.  The Company does not intend to make any contributions to the ESOP in
the future.

     EMPLOYEE STOCK PURCHASE PLAN

     The Company has an  Employee  Stock  Purchase  Plan  (ESPP)  through  which
eligible  employees  may  purchase  shares of the  Company's  common  stock,  at
semi-annual  intervals,  through  periodic  payroll  deductions.  The  ESPP is a
qualified  employee benefit plan under Section 423 of the Internal Revenue Code.
The Company has reserved  2,150,000 shares of stock for issuance under the ESPP.
The  purchase  price per share is the lower of 85% of the  closing  price of the
stock on the first day or the last day of the offering  period or on the nearest
prior day on which trading occurred on the Nasdaq SmallCap Market.

     Employees were issued 559,668, 273,584, and 120,949 shares of the Company's
common  stock  under  the  ESPP  during  fiscal  years  2002,   2001  and  2000,
respectively, at average per share prices of $0.48, $1.27 and $5.43.

                                       84
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     1992 STOCK OPTION PLAN

     The  Company's  1992 Stock  Option Plan was  adopted in  November  1992 and
provides  for the  granting of options to acquire  common  stock of the Company,
direct granting of the common stock of the Company (Stock Awards),  the granting
of stock appreciation  rights (SARs), or the granting of other cash awards (Cash
Awards) (Stock Awards, SARs and Cash Awards are collectively  referred to herein
as  Awards).  At June 30,  2002,  the maximum  number of shares of common  stock
issuable  under the 1992 Plan was 6.0  million  of which  approximately  845,000
options had been exercised. Options may be granted as incentive stock options or
non-qualified stock options.

     Options and Awards may be granted  only to persons who at the time of grant
are  either  (i) key  personnel  (including  officers)  of the  Company  or (ii)
consultants and independent  contractors  who provide  valuable  services to the
Company.  Options that are  incentive  stock  options may be granted only to key
personnel of the Company.

     The 1992 Plan, as amended,  provides for the automatic  grant of options to
acquire the Company's  common stock (the Automatic Grant Program),  whereby each
non-employee  member  of the Board of  Directors  will be  granted  an option to
acquire 2,500 shares of common stock annually.  Each non-employee  member of the
Board of  Directors  also will receive an annual  automatic  grant of options to
acquire  an  additional  number of shares  equal to 1,000  shares for each $0.05
increase  in the  Company's  earnings  per share,  subject to a maximum of 5,000
additional  options.  New  non-employee  members of the Board of Directors  will
receive  options to acquire  10,000  shares of common stock on the date of their
first appointment or election to the Board of Directors.

     The expiration  date,  maximum number of shares  purchasable  and the other
provisions of the options will be established at the time of grant.  Options may
be granted  for terms of up to ten years and become  exercisable  in whole or in
one  or  more  installments  at  such  time  as may be  determined  by the  Plan
Administrator  upon  grant of the  options.  Options  granted  to date vest over
periods  not  exceeding  five  years.  The  exercise  price of  options  will be
determined by the Plan Administrator,  but may not be less than 100% of the fair
market value of the common stock at the date of the grant (110% if the option is
granted  to a  stockholder  who at the date the  option is  granted  owns  stock
possessing  more than 10% of the total  combined  voting power of all classes of
stock of the Company or of its subsidiaries).

     Awards granted in the form of SARs would entitle the recipient to receive a
payment equal to the  appreciation  in market value of a stated number of shares
of common stock from the price stated in the award agreement to the market value
of the  common  stock on the  date  first  exercised  or  surrendered.  The Plan
Administrator  may  determine  such  terms,   conditions,   restrictions  and/or
limitations, if any, on any SARs.

     The 1992 Plan states that it is not intended to be the  exclusive  means by
which the  Company may issue  options or  warrants to acquire its common  stock,
Stock Awards or any other type of award.  To the extent  permitted by applicable
law,  the Company  may issue any other  options,  warrants or awards  other than
pursuant  to the 1992  Plan  without  stockholder  approval.  The 1992 Plan will
remain in force until November 5, 2002.

     2000 NON-QUALIFIED STOCK OPTION PLAN

     The Company's  2000  Non-Qualified  Stock Option Plan was adopted in August
2000 and  provides  for the  granting of options to acquire  common stock of the
Company.  At the time of adoption,  the maximum number of shares of common stock
issuable under the Plan was 2.0 million of which  approximately  116,500 options
have been exercised. Options may only be granted as non-qualified stock options.
The 2000 Plan will remain in force until August 11, 2010.

     Options may be granted  only to persons who at the time of grant are either
regular  employees,  excluding  Directors and  Officers,  or persons who provide
consulting or other services as independent contractors to the Company.

     The expiration  date,  maximum number of shares  purchasable  and the other
provisions of the options will be established at the time of grant.  Options may
be granted  for terms of up to ten years and become  exercisable  in whole or in

                                       85
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

one or more installments at such time as may be determined by the Committee upon
grant of the options.  Options  granted to date vest over periods not  exceeding
three years.  The exercise price of options will be determined by the Committee,
but may not be less than the par value per share.

     The  following  summarizes  stock option  activity in the 1992 Stock Option
Plan and the 2000 Non-Qualified Stock Option Plan:

<TABLE>
<CAPTION>
                                                                           YEAR ENDED JUNE 30, 2002
                                                              ------------------------------------------------------
                                                               NUMBER OF        EXERCISE PRICE      WEIGHTED AVERAGE
                                                                 SHARES           PER SHARE          EXERCISE PRICE
                                                              ----------        --------------       --------------
<S>                                                           <C>              <C>                   <C>
Options outstanding at beginning of year ..................    4,441,668        $1.25 - $36.00           $11.77
  Granted .................................................    1,818,000        $0.39 - $0.86            $ 0.56
  Canceled ................................................     (869,183)       $0.39 - $33.38           $14.48
  Exercised ...............................................     (191,507)       $0.39 - $1.50            $ 0.98
                                                              ----------                                 ------
Options outstanding at end of year ........................    5,198,978        $0.39 - $36.00           $ 7.79
                                                              ==========                                 ======
Options exercisable at end of year ........................    3,654,817        $0.39 - $36.00           $10.48
                                                              ==========                                 ======
Options available for grant at end of year ................    1,750,294
                                                              ==========
Weighted average fair value per share of options granted ..                                              $ 0.26
                                                                                                         ======

                                                                           YEAR ENDED JUNE 30, 2001
                                                              ------------------------------------------------------
                                                               NUMBER OF        EXERCISE PRICE      WEIGHTED AVERAGE
                                                                 SHARES           PER SHARE          EXERCISE PRICE
                                                              ----------        --------------       --------------
Options outstanding at beginning of year ..................    3,581,992        $1.25 - $36.00           $17.35
  Granted .................................................    1,582,750        $1.50 - $ 2.00           $ 1.57
  Canceled ................................................     (723,074)       $1.25 - $32.25           $17.10
  Exercised ...............................................           --              --                     --
                                                              ----------                                 ------
Options outstanding at end of year ........................    4,441,668        $1.25 - $36.00           $11.77
                                                              ==========                                 ======
Options exercisable at end of year ........................    3,190,462        $1.25 - $36.00           $14.79
                                                              ==========                                 ======
Options available for grant at end of year ................    2,788,361
                                                              ==========
Weighted average fair value per share of options granted ..                                              $ 0.72
                                                                                                         ======

                                                                           YEAR ENDED JUNE 30, 2000
                                                              ------------------------------------------------------
                                                               NUMBER OF        EXERCISE PRICE      WEIGHTED AVERAGE
                                                                 SHARES           PER SHARE          EXERCISE PRICE
                                                              ----------        --------------       --------------
Options outstanding at beginning of year ..................    3,575,170        $1.25 - $36.00           $20.99
  Granted .................................................      929,109        $1.38 - $8.00            $ 7.16
  Canceled ................................................     (921,408)       $1.25 - $32.56           $21.20
  Exercised ...............................................         (879)           $1.25                $ 1.25
                                                              ----------                                 ------
Options outstanding at end of year ........................    3,581,992        $1.25 - $36.00           $17.35
                                                              ==========                                 ======
Options exercisable at end of year ........................    2,804,758        $1.25 - $36.00           $18.04
                                                              ==========                                 ======
Options available for grant at end of year ................    1,648,037
                                                              ==========
Weighted average fair value per share of options granted ..                                              $ 3.01
                                                                                                         ======
</TABLE>

The following table details the number of options outstanding and exercisable at
June 30, 2002 for options  issued  under the 1992 Stock Option Plan and the 2000
Non-qualified Stock Option Plan:

                                       86
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
                         -------------------------------------------------------       -------------------------------
                                               WEIGHTED
                                                AVERAGE              WEIGHTED                              WEIGHTED
     RANGE OF              OPTIONS             REMAINING             AVERAGE             OPTIONS            AVERAGE
 EXERCISE PRICES         OUTSTANDING       CONTRACTUAL LIFE       EXERCISE PRICE       EXERCISABLE      EXERCISE PRICE
 ---------------         -----------       ----------------       --------------       -----------      --------------
<S>                      <C>                  <C>                <C>                  <C>               <C>
  $0.39 - $0.39              964,163              9.47               $  0.39              274,520           $  0.39
  $0.44 - $0.86              694,000              9.29               $  0.84              376,000           $  0.85
  $1.25 - $1.38               10,640              7.24               $  1.34               10,640           $  1.34
  $1.50 - $1.50              961,583              8.14               $  1.50              506,520           $  1.50
  $1.56 - $7.13              826,750              6.74               $  5.21              776,750           $  5.42
  $7.56 - $8.00              673,440              7.02               $  7.87              673,440           $  7.87
  $8.25 - $29.00             732,809              4.05               $ 23.88              701,354           $ 23.65
 $32.25 - $34.00             303,093              4.47               $ 32.47              303,093           $ 32.47
 $34.50 - $34.50              10,000              5.39               $ 34.50               10,000           $ 34.50
 $36.00 - $36.00              22,500              4.39               $ 36.00               22,500           $ 36.00
                         -----------             -----               -------            ---------           -------
  $0.39 - $36.00           5,198,978              7.36               $  7.79            3,654,817           $ 10.48
                         ===========             =====               =======            =========           =======
</TABLE>

     ACCOUNTING FOR STOCK-BASED COMPENSATION

     SFAS 123,  defines a fair value based  method of  accounting  for  employee
stock  options  or  similar  equity  instruments  but also  allows  an entity to
continue  to  measure  compensation  cost  related  to stock  options  issued to
employees  using the method of  accounting  prescribed  by APB 25.  Entities who
elected to  continue  following  APB 25 must make pro forma  disclosures  of net
income (loss) and earnings  (loss) per share,  as if the fair value based method
of accounting defined in SFAS 123 had been applied.

     The Company has elected to account for its stock-based  compensation  plans
under APB 25; therefore,  no compensation cost is recognized in the accompanying
financial statements for stock-based  employee awards.  However, the Company has
computed,  for pro forma disclosure purposes,  the value of all options and ESPP
shares  granted  during  2002,  2001 and 2000,  using the  Black-Scholes  option
pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED JUNE 30,
                                              -------------------------------------------------------------
                                                    2002                   2001                  2000
                                              -----------------      -----------------     -----------------
                                              OPTIONS      ESPP      OPTIONS      ESPP     OPTIONS      ESPP
                                              -------      ----      -------      ----     -------      ----
<S>                                             <C>         <C>        <C>        <C>        <C>        <C>
Risk-free interest rate.............            2.27%       1.89%      3.74%      2.55%      6.03%      6.32%
Expected dividend yield.............            0.00%       0.00%      0.00%      0.00%      0.00%      0.00%
Expected lives in years (after
  vesting for options)..............            2.72        0.50       1.35       0.50       1.35       0.50
Expected volatility.................           80.33%      119.3%     72.66%     96.75%     67.51%     99.78%
</TABLE>

     The total value of options  granted and ESPP share discount was computed to
be  the  following  approximate  amounts,   which  would  be  amortized  on  the
straight-line basis over the vesting period:

                                                           OPTIONS   ESPP
                                                           -------   -----
      For the year ended June 30, 2002................      $  409   $  77
      For the year ended June 30, 2001................      $1,134   $ 188
      For the year ended June 30, 2000................      $2,724   $ 137

     If the Company had accounted for its stock-based compensation plans using a
fair value based method of accounting,  the Company's year end net income (loss)
and diluted earnings (loss) per share would have been reported as follows:

                                       87
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

                                                 YEAR ENDED JUNE 30,
                                         ------------------------------------
                                           2002         2001          2000
                                         ---------   ----------    ----------
                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
     Net income (loss):
       Historical .....................  $ (45,624)  $ (226,731)   $ (101,273)
       Pro forma ......................  $ (46,209)  $ (227,606)   $ (101,762)
     Diluted earnings (loss) per share:
       Historical .....................  $   (2.89)  $   (15.38)   $    (6.94)
       Pro forma ......................  $   (2.93)  $   (15.44)   $    (6.97)

     The effects of applying SFAS 123 for providing  pro forma  disclosures  for
2002,  2001 and 2000 are not  likely  to be  representative  of the  effects  on
reported  net income  (loss) and  diluted  earnings  (loss) per share for future
years,  because  options vest over several years and additional  awards are made
each year.

     401(K) PLAN

     The Company has a contributory  retirement  plan (the 401(k) Plan) covering
eligible employees who are at least 18 years old. The 401(k) Plan is designed to
provide  tax-deferred  income to the Company's  employees in accordance with the
provisions of Section 401(k) of the Internal Revenue Code.

     The 401(k) Plan provides that each  participant may contribute up to 15% of
his or her respective  salary,  not to exceed the annual  statutory  limit.  The
Company, at its discretion, may elect to make matching contributions in the form
of  cash  or the  Company's  common  stock  to  each  participant's  account  as
determined  by the Board of Directors.  Under the terms of the 401(k) Plan,  the
Company may also make discretionary profit sharing contributions. Profit sharing
contributions   are  allocated   among   participants   based  on  their  annual
compensation.  Each participant has the right to direct the investment of his or
her funds.  The Company accrued a matching  contribution of  approximately  $1.7
million for the 401(k) Plan year ended  December 31, 2000.  During  fiscal 2002,
the Company made the decision not to make this  discretionary  contribution  and
reversed  the accrual of $1.7  million to income.  The  Company  made a matching
contribution  in fiscal 2002  totaling  $1.6  million  relating to the Plan year
ended December 31, 2001.

(14) COMMITMENTS AND CONTINGENCIES

     MEDICARE FEE SCHEDULE

     On April 1, 2002,  the Medicare  Ambulance  Fee Schedule  Final Rule became
effective. The final rule categorizes seven levels of ground ambulance services,
ranging from basic life support to specialty care transport,  and two categories
of air  ambulance  services.  The base rate  conversion  factor for  services to
Medicare  patients was set at $170.54,  plus separate  mileage payments based on
specified relative value units for each level of ambulance service.  Adjustments
also were included to recognize  differences  in relative  practice  costs among
geographic  areas,  and  higher  transportation  costs that may be  incurred  by
ambulance providers in rural areas with low population  density.  The Final Rule
requires ambulance  providers to accept the assigned  reimbursement rate as full
payment,  after  patients  have  submitted  their  deductible  and 20 percent of
Medicare's  fee for service.  In addition,  the Final Rule calls for a five-year
phase-in  period to allow time for providers to adjust to the new payment rates.
The fee schedule  will be phased in at  20-percent  increments  each year,  with
payments being made at 100 percent of the fee schedule in 2006 and thereafter.

     The Company  currently  believes  that the Medicare  Ambulance Fee Schedule
will have a neutral net impact on its domestic medical transportation revenue at
incremental and full phase-in periods, primarily due to the geographic diversity
of its  domestic  operations.  These rules  could,  however,  result in contract
renegotiations  or other  actions to offset any negative  impact at the regional
level  that  could have a material  adverse  effect on its  business,  financial
condition,  cash flows,  and  results of  operations.  Changes in  reimbursement
policies,  or other governmental action,  together with the financial challenges
of some private,  third-party payers and budget pressures on other payer sources
could  influence  the timing  and,  potentially,  the  receipt of  payments  and
reimbursements.  A reduction in coverage or  reimbursement  rates by third-party

                                       88
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

payers,  or an increase in the  Company's  cost  structure  relative to the rate
increase in the Consumer  Price Index (CPI),  or costs incurred to implement the
mandates  of the fee  schedule  could  have a  material  adverse  effect  on its
business, financial condition, cash flows, and results of operations.

     SURETY BONDS

     Counties,  municipalities, and fire districts sometimes require the Company
to  provide  a surety  bond or  other  assurance  of  financial  or  performance
responsibility. The Company may also be required by law to post a surety bond as
a prerequisite to obtaining and  maintaining a license to operate.  As a result,
the  Company  has a  portfolio  of surety  bonds that is renewed  annually.  The
Company has outstanding $10.1 million of surety bonds as of June 30, 2002.

     OPERATING LEASES

     The Company leases various  facilities and equipment  under  non-cancelable
operating lease  agreements.  Rental expense  charged to operations  under these
leases  (including  leases  with terms of less than one year) was  approximately
$11.5  million,  $12.1  million  and $13.2  million for the years ended June 30,
2002, 2001 and 2000, respectively.

     Minimum rental commitments under  non-cancelable  operating leases for each
of the years ending June 30 are as follows (in thousands):

                 2003............................       $  7,878
                 2004............................          6,777
                 2005............................          5,734
                 2006............................          4,739
                 2007............................          3,112
                 Thereafter......................         10,236
                                                        --------
                      Total                             $ 38,476
                                                        ========

     LEGAL PROCEEDINGS

     From time to time,  the  Company is subject to  litigation  and  regulatory
investigations  arising in the ordinary course of business. The Company believes
that the resolution of currently  pending claims or legal  proceedings  will not
have a material adverse effect on its business,  financial condition, cash flows
and  results of  operations.  However,  the  Company  is unable to predict  with
certainty the outcome of pending  litigation and regulatory  investigations.  In
some  pending  cases,  insurance  coverage  may not be  adequate  to  cover  all
liabilities  arising out of such claims.  In addition,  due to the nature of the
Company's  business,  CMS and other regulatory agencies are expected to continue
their  practice of performing  periodic  reviews and  initiating  investigations
related  to the  Company's  compliance  with  billing  regulations.  Unfavorable
resolutions  of  pending  or  future   litigation,   regulatory  reviews  and/or
investigations,  either individually or in the aggregate,  could have a material
adverse effect on the Company's business,  financial  condition,  cash flows and
results of operations.

     The Company,  Warren S. Rustand, the former Chairman of the Board and Chief
Executive  Officer of the Company,  James H. Bolin,  the former Vice Chairman of
the Board,  and Robert E. Ramsey,  Jr., the former  Executive Vice President and
former  Director,  were  named  as  defendants  in two  purported  class  action
lawsuits: HASKELL V. RURAL/METRO CORPORATION,  ET AL., Civil Action No. C-328448
filed on August 25, 1998 in Pima  County,  Arizona  Superior  Court and RUBLE V.
RURAL/METRO  CORPORATION,  ET AL., CIV 98-413-TUC-JMR filed on September 2, 1998
in United States  District Court for the District of Arizona.  The two lawsuits,
which contain virtually identical allegations, were brought on behalf of a class
of persons who purchased the Company's publicly traded securities  including its
common stock  between April 28, 1997 and June 11, 1998.  Haskell v.  Rural/Metro
seeks unspecified damages under the Arizona Securities Act, the Arizona Consumer
Fraud Act, and under Arizona common law fraud, and also seeks punitive  damages,
a constructive  trust, and other injunctive  relief.  Ruble v. Rural/Metro seeks
unspecified  damages under Sections  10(b) and 20(a) of the Securities  Exchange
Act of 1934,  as amended.  The  complaints  in both actions  allege that between

                                       89
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

April  28,  1997 and June 11,  1998 the  defendants  issued  certain  false  and
misleading  statements  regarding  certain  aspects of the  Company's  financial
status and that these statements  allegedly caused the Company's common stock to
be traded at artificially  inflated prices.  The complaints also allege that Mr.
Bolin and Mr. Ramsey sold stock during this period,  allegedly  taking advantage
of inside information that the stock prices were artificially inflated.

     On May 25, 1999,  the Arizona  State Court  granted a request for a stay of
the Haskell action until the Ruble action is finally  resolved.  The Company and
the  individual  defendants  moved to dismiss the Ruble  action.  On January 25,
2001, the Court granted the motion to dismiss,  but granted the plaintiffs leave
to replead.  On March 31, 2001, the plaintiffs filed a second amended complaint.
The Company and the  individual  defendants  moved to dismiss the second amended
complaint.  On March 8, 2002,  the Court  granted  the motions to dismiss of Mr.
Ramsey and Mr.  Bolin with leave to replead and denied the motions to dismiss of
the Company and Mr.  Rustand.  The result is that Mr.  Ramsey and Mr. Bolin have
been  dismissed  from the  Ruble v.  Rural/Metro  case  although  the  Court has
permitted  plaintiffs leave to file another complaint against those individuals.
Mr. Rustand and the Company remain defendants.

     The parties  have  commenced  discovery in the Ruble v.  Rural/Metro  case.
During  discovery,  the parties conduct  investigation  through formal processes
such as  depositions,  subpoenas and requests for production of documents.  This
phase is currently  expected to run through  early  November  2003. In addition,
Plaintiffs have moved to certify the class in the Ruble v.  Rural/Metro  case. A
decision on class certification is not expected before February 2003.

     The Company and the individual defendants are insured by primary and excess
insurance  policies,  which were in effect at the time the  lawsuits  were filed
(the "D&O Policies").  The Company's  primary carrier has been funding the costs
of the litigation and attorney's  fees over  approximately  the last four years.
Recently, however, the Company's primary carrier notified all defendants that it
is taking the position that there is no coverage.  The primary carrier  purports
to base this  decision on the actions of one of the Company's  former  officers,
whom  the  primary  carrier  claims  assisted  the  Plaintiffs  in the  Ruble v.
Rural/Metro case in such a way as to trigger an exclusion under the policy.  The
Company and the primary  carrier  are in the process of  negotiating  an interim
funding  agreement  under which the carriers  will  continue to advance  defense
costs  in the  underlying  litigations  pending  a  court  determination  of the
coverage  dispute.  While the Company  intends to  vigorously  pursue its rights
under the D&O  Policies,  the Company is unable to predict  with  certainty  the
outcome of these matters.  A final and binding adverse  judgment on the coverage
dispute  could  have  a  material  adverse  effect  on the  Company's  business,
financial condition, cash flows and results of operations.

     LaSalle Ambulance,  Inc., a New York subsidiary of Rural/Metro Corporation,
has  been  sued in the  case of Ann  Bogucki  and  Patrick  Bogucki  v.  LaSalle
Ambulance  Service,  et al., Index No. I 1995 2128, pending in the Supreme Court
of the State of New York,  Erie  County.  In 1995,  Plaintiff  Ann Bogucki  sued
LaSalle Ambulance along with other defendants, primarily alleging that negligent
medical care caused her injuries. The incident occurred in 1992, which was prior
to our  acquisition  of LaSalle  Ambulance,  Inc.  The prior  owner's  insurance
carrier is  defending  the case.  Based on  information  obtained  in the fourth
quarter of fiscal 2002, the Company does not believe that its primary  insurance
policy for the  post-acquisition  period  provides  coverage  for these  claims;
however,  the Company believes that it has meritorious  claims against the prior
owner  and under the  pre-acquisition  period  insurance  policy.  Further,  the
Company  does  not  believe  that  Plaintiffs'  claims  have any  merit  and are
cooperating  with the  insurance  carrier  to  vigorously  defend  the  lawsuit.
However, if the Plaintiffs are successful in obtaining an adverse judgment, then
the limits of the prior  owner's  insurance  policy may not be adequate to cover
all  damages  that might  arise out of this  lawsuit.  As the  current  owner of
LaSalle Ambulance,  Inc., the Company has potential  liability for the uninsured
portion of any such adverse judgment; which liability, if occurring,  could have
a material adverse effect on its business,  financial condition,  cash flows and
results of operations.

     OTHER DISPUTES

     In 1994,  the Company  entered  into a  management  agreement  with another
corporation to manage the operations of one of the Company's  subsidiaries  that
does not provide ambulance or fire protection services. The Company also entered
into an agreement  whereby the corporation had the option to purchase the assets

                                       90
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

of the  subsidiary  and the  Company  had the  option to sell the  assets of the
subsidiary.  A dispute arose regarding the obligations  under the management and
option  agreements.  The Company settled this dispute during the year ended June
30, 2000. Losses relating to this dispute totaled approximately $1.3 million and
are included in restructuring charges and other in the consolidated statement of
operations for the year ended June 30, 2000.

     REGULATORY COMPLIANCE

     The  healthcare  industry is subject to numerous  laws and  regulations  of
federal,  state, and local governments.  These laws and regulations include, but
are not  necessarily  limited  to,  matters  such as  licensure,  accreditation,
government  healthcare  program  participation  requirements,  reimbursement for
patient  services,   and  Medicare  and  Medicaid  fraud  and  abuse.  Recently,
government activity has increased with respect to investigations and allegations
concerning  possible  violations of fraud and abuse statutes and  regulations by
healthcare  providers.  Violations of these laws and regulations could result in
expulsion from government  healthcare  programs  together with the imposition of
significant fines and penalties,  as well as significant  repayments for patient
services  previously  billed.  The Company  believes that it is substantially in
compliance with fraud and abuse statutes as well as their applicable  government
review and interpretation as well as regulatory actions unknown or unasserted at
this time.

     The  Company has been  subject to  investigations  in the past  relating to
Medicare and Medicaid laws  pertaining to its industry.  The Company  cooperated
fully with the government  agencies that conducted these  investigations.  Those
reviews cover periods prior to the Company's  acquisition of certain  operations
as well as periods  subsequent  to  acquisition.  Management  believes  that the
remedies  existing  under  specific  purchase  agreements  along  with  reserves
established in the Consolidated  Financial Statements are sufficient so that the
ultimate  outcome of these matters should not have a material  adverse effect on
its business, financial condition, cash flows and results of operations.

     The Company recently became aware of, and has taken corrective  action with
respect to, various issues arising  primarily from the transition to the Company
from various  acquired  operations of Federal  Communications  Commission  (FCC)
licenses for public safety and private  wireless radio  frequencies  used in the
ordinary course of our business. While the Company does not currently anticipate
that action with  respect to these issues by the FCC's  enforcement  bureau will
result  in  material  monetary  fines or  license  forfeitures,  there can be no
assurance that this will be the case.

(15) FINANCIAL INSTRUMENTS

     The estimated fair value of financial  instruments  has been  determined by
the Company using  available  market  information  and valuation  methodologies.
Considerable  judgment is required  in  interpreting  market data to develop the
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts that the Company could realize in a current market exchange.  The use of
different market  assumptions or valuation  methodologies  could have a material
effect on the estimated  fair value  assumptions.  The carrying  values of cash,
accounts receivable, accounts payable, accrued liabilities and other liabilities
approximates  the related fair values due to the short-term  maturities of these
instruments.  The carrying value of notes payable and capital lease  obligations
approximate  the related fair values as rates on these  instruments  approximate
market  rates  currently  available  for  instruments  with  similar  terms  and
remaining  maturities.  The fair value of the Senior Notes was determined by the
market price as of June 30, 2002.  The  relationship  between the fair value and
carrying  value of the Senior Notes was then  applied to the amount  outstanding
under the revolving  credit  facility to arrive at its estimated  fair value.  A
comparison  of the fair  value  and  carrying  value  of the  Senior  Notes  and
revolving credit facility is as follows.

                                              FAIR VALUE       RECORDED VALUE
                                              ----------       --------------
         Revolving Credit Facility.........     $93,840           $144,369
         Senior Notes......................     $97,404           $149,852

                                       91
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(16) SEGMENT REPORTING

     For financial reporting purposes, the Company has classified its operations
into two  reporting  segments  that  correspond  with the  manner in which  such
operations are managed: the Medical  Transportation and Related Services Segment
and the Fire and Other Segment.  Each reporting segment consists of cost centers
(operating segments)  representing the Company's various service areas that have
been aggregated on the basis of the type of services provided, customer type and
methods of service delivery.

     The Medical  Transportation and Related Services Segment includes emergency
ambulance services provided to individuals  pursuant to contracts with counties,
fire districts, and municipalities,  as well as non-emergency ambulance services
provided to  individuals  requiring  either  advanced or basic levels of medical
supervision   during   transport.   The  Segment   also   includes   alternative
transportation services, operational and administrative support services related
to the  Company's  public/private  alliance  with  the  City  of San  Diego  and
ambulance and urgent care services provided under capitated service arrangements
in  Argentina.  As  discussed  in Note 17,  the  Company  disposed  of its Latin
American operations in a sale to local management on September 27, 2002.

     The Fire and Other Segment  includes a variety of fire protection  services
including fire prevention,  suppression,  training, alarm monitoring,  dispatch,
fleet and billing services.

     The accounting  policies described in Note 1 to the Consolidated  Financial
Statements  have also  been  followed  in the  preparation  of the  accompanying
financial  information  for each  reporting  segment.  For  internal  management
purposes,  the Company's  measure of segment  profitability is defined as income
(loss)  before   interest,   income  taxes,   depreciation   and   amortization.
Additionally,  segment  assets are  defined  as  consisting  solely of  accounts
receivable.

     The following tables summarize the information  required to be presented by
SFAS 131,  Disclosures about Segments of an Enterprise and Related  Information,
as of and for the years  ended June 30,  2002,  2001 and 2000.  The  Company has
revised certain of the information presented below as of and for the years ended
June 30, 2001 and 2000. Such revisions consist of:

     *    The inclusion of  alternative  transportation  services ($9.7 million,
          $10.6  million  and $15.0  million in the fiscal  years ended June 30,
          2002,  2001  and  2000,  respectively)  as  well  as  operational  and
          administrative    support    services   related   to   the   Company's
          public/private  alliance  with the City of San Diego  ($14.7  million,
          $12.1  million  and $9.5  million in the fiscal  years  ended June 30,
          2002, 2001 and 2000,  respectively) within the Medical  Transportation
          and Related Services  Segment (such services were previously  included
          in the Fire and Other Segment);

     *    The  clarification of the measure of segment  profitability as well as
          the  definition  of segment  assets to  correspond  with the manner in
          which the Company has historically managed its operations; and

     *    The addition of a reconciliation of the segment financial  information
          to  corresponding  amounts  contained  in the  Consolidated  Financial
          Statements.

     These  revisions,  which  had  no  impact  on  the  Company's  consolidated
financial  position,  results of operations or cash flows, have not been audited
by any independent accountants.

                                       92
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     Information by operating segment is set forth below:

<TABLE>
<CAPTION>
                                                  MEDICAL
                                              TRANSPORTATION
                                                AND RELATED
                                                 SERVICES    FIRE AND OTHER    CORPORATE       TOTAL
                                                 --------    --------------    ----------    ---------
                                                                    (IN THOUSANDS)
<S>                                              <C>           <C>             <C>          <C>
YEAR ENDED JUNE 30, 2002
  Net revenues from external customers.......    $ 420,802     $  76,236        $      --    $ 497,038
  Segment profit (loss) .....................       51,514         9,278          (17,776)      43,016
  Segment assets ............................       97,521         1,594               --       99,115

                                                  MEDICAL
                                              TRANSPORTATION
                                                AND RELATED
                                                 SERVICES    FIRE AND OTHER    CORPORATE       TOTAL
                                                 --------    --------------    ----------    ---------
                                                                    (IN THOUSANDS)
YEAR ENDED JUNE 30, 2001
  Net revenues from external customers.......    $ 425,582     $  78,734        $      --    $ 504,316
  Segment profit (loss) .....................     (155,033)       11,643          (19,902)    (163,292)
  Segment assets ............................      102,136         1,124               --      103,260

                                                  MEDICAL
                                              TRANSPORTATION
                                                AND RELATED
                                                 SERVICES    FIRE AND OTHER    CORPORATE       TOTAL
                                                 --------    --------------    ----------    ---------
                                                                    (IN THOUSANDS)
YEAR ENDED JUNE 30, 2000
  Net revenues from external customers.......    $ 492,218     $  77,856        $      --    $ 570,074
  Segment profit (loss) .....................      (59,913)       14,522          (30,233)     (75,624)
  Segment assets ............................      139,525         4,380               --      143,905
</TABLE>

     A  reconciliation  of segment  profit (loss) to income (loss) before income
taxes,  extraordinary  loss  and  cumulative  effect  of  change  in  accounting
principle is as follows:

                                              2002         2001         2000
                                            ---------    ---------    ---------
     Segment profit (loss) ..............   $  43,016    $(163,292)   $ (75,624)
     Depreciation and amortization ......     (16,210)     (29,161)     (33,696)
     Interest expense, net ..............     (24,976)     (30,001)     (25,939)
     Other income (expense), net ........           9       (2,402)       2,890
                                            ---------    ---------    ---------
     Income (loss) before income taxes,
       extraordinary loss and
       cumulative effect of change
       in accounting principle ..........   $   1,839    $(224,856)   $(132,369)
                                            =========    =========    =========

                                       93
<PAGE>
                            RURAL/METRO CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

A reconciliation of segment assets to total assets is as follows:

                                          2002         2001         2000
                                       ----------   ----------   ----------
     Segment assets.................   $   99,115   $  103,260   $  143,905
     Cash...........................        9,828        8,699       10,287
     Inventories....................       12,220       13,173       19,070
     Prepaid expenses and other.....        9,597        6,753        6,552
     Property and equipment, net....       48,532       57,999       85,919
     Goodwill.......................       41,244       90,757      207,200
     Other assets...................       16,902       17,893       18,284
                                       ----------   ----------   ----------
                                       $  237,438   $  298,534   $  491,217
                                       ==========   ==========   ==========

Information concerning principal geographic areas is set forth below:

<TABLE>
<CAPTION>
                                           2002                     2001                      2000
                                  -----------------------   -----------------------   -----------------------
                                            NET PROPERTY              NET PROPERTY              NET PROPERTY
                                  REVENUE   AND EQUIPMENT   REVENUE   AND EQUIPMENT   REVENUE   AND EQUIPMENT
                                  -------   -------------   -------   -------------   -------   -------------
                                                               (IN THOUSANDS)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
United States ................    $471,644     $ 48,198     $461,227     $ 57,682     $517,315     $ 79,257
Latin America (primarily
  Argentina) .................      25,394          334       43,089          317       52,759        6,662
                                  --------     --------     --------     --------     --------     --------
     Total ...................    $497,038     $ 48,532     $504,316     $ 57,999     $570,074     $ 85,919
                                  ========     ========     ========     ========     ========     ========
</TABLE>

(17) SUBSEQUENT EVENT

     Due to the deteriorating  economic conditions and continued  devaluation of
the local currency, the Company reviewed its strategic alternatives with respect
to the  continuation  of operations in Latin  America,  including  Argentina and
Bolivia,  and  determined  that the Company  would  benefit from focusing on its
domestic  operations.  Effective  September 27, 2002, the Company sold its Latin
American  operations to local  management for the assumption of net liabilities.
Revenues relating to its Latin American operations totaled $25.4 million,  $43.1
million and $57.4 million for the years ended 2002, 2001 and 2000, respectively.
Excluding asset impairment and restructuring charges, operating expenses related
to the Latin American operations totaled $23.8 million,  $44.7 million and $56.2
million for the years ended June 30, 2002, 2001 and 2000, respectively. Although
we have not  determined  the final  accounting,  we do not expect  there to be a
negative financial impact from this transaction.

(18) RELATED PARTY TRANSACTIONS

     The Company  incurred legal fees of  approximately  $138,000,  $130,000 and
$96,000 for the years ended June 30, 2002, 2001 and 2000,  respectively,  with a
law firm in which a member of the Board of Directors is a partner.

     The Company  incurred rental expense of  approximately  $46,000 for each of
the years  ended  June 30,  2002,  2001 and 2000  related  to leases of fire and
ambulance facilities with a director of the Company.

     The Company incurred consulting fees of approximately $89,000,  $99,000 and
$85,000 in the years ended June 30, 2002,  2001 and 2000,  respectively,  with a
director of the Company.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.

                                       94
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

       NAME             AGE             POSITIONS WITH THE COMPANY
       ----             ---             --------------------------
Cor J. Clement, Sr.      54       Chairman of the Board and Director (3)

Jack E. Brucker          50       President, Chief Executive Officer and
                                    Director

John S. Banas III        40       Senior Vice President and General Counsel

Barry D. Landon          55       Senior Vice President of National Billing and
                                    Collections

Randall L. Harmsen       51       Vice President of Finance, Chief Accounting
                                    Officer

Mary Anne Carpenter      57       Director (1) (2) (4)

Louis G. Jekel           61       Vice Chairman of the Board, Secretary and
                                    Director

William C. Turner        73       Director (1) (2) (3) (4)

Henry G. Walker          55       Director (1) (2) (3) (4)

Louis A. Witzeman        77       Director

----------
(1)  Member of the Compensation Committee.
(2)  Member of the Corporate Governance Committee.
(3)  Member of the Executive Committee.
(4)  Member of the Audit Committee.

     COR J. CLEMENT,  SR. has served as Chairman of our Board of Directors since
August  1998 and as a member of our  Board of  Directors  since  May  1992.  Mr.
Clement  served as Vice  Chairman of the Board of Directors  from August 1994 to
August 1998. Mr. Clement served as the President and Chief Executive  Officer of
NVD, an  international  provider  of security  and  industrial  fire  protection
services  headquartered  in  the  Netherlands,  from  February  1980  until  his
retirement in January 1997.

     JACK E. BRUCKER has served as our President and Chief Executive Officer and
has been a member of our Board of Directors  since  February  2000.  Mr. Brucker
served as our Senior Vice  President and Chief  Operating  Officer from December
1997 until February 2000. Mr. Brucker founded and served as President of Pacific
Holdings,  a strategic  consulting firm, from July 1989 until December 1997. Mr.
Brucker served as President of Pacific  Precision  Metals,  a consumer  products
company, from September 1987 until June 1989.

     JOHN S. BANAS III has  served as our  Senior  Vice  President  and  General
Counsel since April 2000. Mr. Banas served as our General Counsel from September
1999 through April 2000.  Mr. Banas served as General  Counsel at SpinCycle Inc.
in Scottsdale,  Arizona from 1998 to September  1999.  From 1995 to 1998, he was
Senior Corporate Counsel to Lam Research Corporation in Fremont, California; and
from 1992 to 1995 served as corporate, real estate, and environmental counsel at
the law firm of Wilson, Sonsini, Goodrich & Rosati in Palo Alto, California. Mr.
Banas served as litigation  counsel from 1989 to 1992 at the law firm of Thelen,

                                       95
<PAGE>
Marrin,  Johnson  &  Bridges  (now  Thelen,  Reid &  Priest)  in San  Francisco,
California.

     BARRY D. LANDON has served as Senior Vice President of National Billing and
Collections  since  May  2002,  and  Vice  President  of  National  Billing  and
Collections  from May 2000 to May  2002.  Mr.  Landon  also  has  served  as the
President of the Southwest  Emergency  Services  Group since  November 1999. Mr.
Landon  served as Director of National  Billing from  February 1998 to May 2000.
Prior to joining the Company, Mr. Landon served as President and Chief Financial
Officer of SW General,  Inc., d/b/a Southwest Ambulance,  from June 1977 through
February 1998, which was acquired by the Company on June 30, 1997.

     RANDALL L.  HARMSEN  has  served as Vice  President  of  Finance  and Chief
Accounting  Officer since July 2000.  Mr.  Harmsen  served as Vice  President of
Network  Management and Chief Financial Officer for United Healthcare of Arizona
Inc. in Phoenix,  Arizona,  from 1997 until the time he joined our company. From
1994 to 1997,  he was Vice  President  of Finance  for  Carondelet  Health  Care
Corporation in Tucson,  Arizona.  From 1989 to 1994, Mr. Harmsen served as Chief
Financial  Officer for  Presbyterian  Healthcare  Services in  Albuquerque,  New
Mexico;  and from 1977 to 1989,  he was Chief  Financial  Officer for St. Luke's
Hospital in Davenport, Iowa.

     MARY  ANNE  CARPENTER  has been a member of our  Board of  Directors  since
January 1998.  Ms.  Carpenter  served as Executive  Vice President and Executive
Committee  member of First Health Group Corp., a publicly  traded managed health
care company,  from January 1993 until her retirement in May 2001.  From October
1991 until January 1993, Ms. Carpenter served as Senior Vice President, and from
July 1986 through  October 1991,  as Vice  President of First Health Group Corp.
Ms.  Carpenter  has served on panels for  several  other  national  health  care
organizations.

     LOUIS G. JEKEL has served as our  Secretary and as a member of our Board of
Directors since 1968 and as Vice Chairman of our Board of Directors since August
1998.  Mr.  Jekel is a partner  in the law firm of Jekel &  Howard,  Scottsdale,
Arizona.

     WILLIAM  C.  TURNER  has been a member  of our  Board  of  Directors  since
November 1993. Mr. Turner is currently  Chairman and Chief Executive  Officer of
Argyle Atlantic  Corporation,  an international  merchant banking and management
consulting  firm;  a trustee  of the United  States  Council  for  International
Business;  a  trustee  and past  Chairman  of the  American  Graduate  School of
International Management  (Thunderbird);  and a Board member and former Chairman
of the Board of Directors of Mercy Ships International, Incorporated. Mr. Turner
is also a former United States  Ambassador and permanent  representative  to the
Organisation for Economic Co-operation and Development.

     HENRY G. WALKER has been a member of our Board of Directors since September
1997.  Since April 1997, he has served as President and Chief Executive  Officer
of the Sisters of Providence  Health System,  comprised of hospitals,  long-term
care facilities,  physician practices,  managed care plans, and other health and
social  services.  From 1996 to March 1997,  Mr.  Walker served as President and
Chief Executive Officer of Health Partners of Arizona, a state-wide managed care
company.  From 1992 to 1996, he served as President and Chief Executive  Officer
of Health Partners of Southern Arizona, a healthcare delivery system. Mr. Walker
is a member of the National  Advisory Council of the Healthcare  Forum, and also
serves as a director of Consolidated  Catholic  Healthcare a private  non-profit
company.

     LOUIS A. WITZEMAN is the founder of our company. Mr. Witzeman has served as
a member  of our  Board of  Directors  since our  formation  in 1948,  currently
serving as  Chairman of the Board  Emeritus.  Mr.  Witzeman  served as our Chief
Executive  Officer and  Chairman of the Board of  Directors  from 1948 until his
retirement in 1980.

     Directors  hold  office  until  their  successors  have  been  elected  and
qualified.  All officers serve at the pleasure of the Board of Directors.  There
are no family relationships among any of our directors or officers.

                                       96
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

     Based  solely on our  review of the  copies of such  forms  received  by us
during the fiscal year ended June 30, 2002, and written  representations that no
other reports were required, we believe that each person who, at any time during
such fiscal year, was a director,  officer or beneficial  owner of more than 10%
of our common stock complied with all Section 16(a) filing  requirements  during
such  fiscal  year.  We have  relied  solely on written  representations  of our
directors and executive officers, and copies of the reports that they have filed
with the Commission.

                                       97
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND OTHER COMPENSATION

     The following table sets forth the total compensation received for services
rendered to us in all capacities for the fiscal years ended June 30, 2000, 2001,
and 2002 by our Chief  Executive  Officer and our three most highly  compensated
executive  officers  who were in office at June 30,  2002.  The table  also sets
forth this information for one other executive officer who is no longer with our
company at June 30, 2002, whose aggregate cash compensation exceeded $100,000.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                                          LONG TERM
                                                                         COMPENSATION
                                                                            AWARDS
                                                                          -----------
                                           ANNUAL COMPENSATION            SECURITIES    ALL OTHER
NAME AND PRINCIPAL                   ---------------------------------    UNDERLYING   COMPENSATION
POSITION AT YEAR-END                 YEAR   SALARY ($) (1)   BONUS ($)    OPTIONS (#)    ($) (2)
--------------------                 ----   --------------   ---------    -----------    -------
<S>                                  <C>       <C>           <C>            <C>           <C>
Jack E. Brucker                      2002      $594,615      $307,000       125,000       $3,400
Chief Executive Officer              2001      $447,077      $ 43,600       200,000       $3,200
and President (3)                    2000      $314,246            --        21,000       $3,200

John S. Banas III                    2002      $267,692      $ 84,000        80,000       $2,400
Senior Vice President                2001      $207,800      $ 18,020       150,000           --
and General Counsel                  2000      $126,438            --        17,500           --

Barry D. Landon                      2002      $209,231      $ 87,500        70,000           --
Senior Vice President of             2001      $199,039      $ 87,500        30,000           --
National Billing and Collections     2000      $174,269      $ 45,750        15,000           --

Randall L. Harmsen                   2002      $200,000      $ 64,750        60,000       $3,373
Vice President of Finance            2001      $182,577            --        20,000           --
                                     2000            --            --            --           --

Dr. Michel Sucher                    2002      $210,000            --            --
Former Senior Vice President and     2001      $201,923      $ 19,500        75,000       $3,200
Chief Medical Officer (4)            2000      $184,231            --        12,500       $3,200
</TABLE>

----------
(1)  Other  annual  compensation  did not exceed the lesser of $50,000 or 10% of
     the total salary and bonus for any of the officers listed.
(2)  Unless otherwise indicated,  consists of company-matching  contributions to
     our 401(k) plan paid in cash.
(3)  Mr.  Brucker became our President and Chief  Executive  Officer in February
     2000.  From December 1997 until  February  2000,  Mr. Brucker served as our
     Senior Vice President and Chief Operating Officer.
(4)  Dr. Sucher became an executive officer of our Company during February 2000.
     Dr. Sucher's employment with the Company terminated in July 2001.
(5)  Includes $193,846 paid to Dr. Sucher pursuant to his employment agreement.

                                       98
<PAGE>
OPTION GRANTS

     The following  table  represents the options granted to the listed officers
in the last fiscal year and the value of the options.

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                            PERCENT OF
                           NUMBER OF      TOTAL OPTIONS
                          SECURITIES        GRANTED TO     EXERCISE OR                   GRANT DATE
                      UNDERLYING OPTIONS   EMPLOYEES IN    BASE PRICE     EXPIRATION      PRESENT
                        GRANTED (#)(1)     FISCAL YEAR      ($/SHARE)        DATE       VALUE ($)(2)
                        --------------     -----------      ---------        ----       ------------
<S>                     <C>                <C>              <C>           <C>           <C>
Jack E. Brucker            125,000 (3)         6.9%           $0.84         7/2/2011      $ 36,725
John S. Banas III           80,000             4.4%           $0.39       12/17/2011      $ 14,165
Randall L. Harmsen          60,000             3.3%           $0.39       12/17/2011      $ 10,624
Barry D. Landon             70,000             3.9%           $0.39       12/17/2011      $ 12,395
Dr. Michel Sucher (4)           --              --               --               --      $     --
</TABLE>

----------
(1)  Except  as  otherwise  indicated,  all  of  the  options  vest  and  become
     exercisable as follows: one-third at grant date in December 2001, one-third
     in December 2002 and one-third in December 2003.
(2)  The  hypothetical  present  value of the  options  at the date of grant was
     determined using the Black-Scholes  option pricing model. The Black-Scholes
     model  estimates the present value of an option by  considering a number of
     factors,  including the exercise price of the option, the volatility of our
     common stock,  the dividend  rate,  the term of the option,  the time it is
     expected to be outstanding,  and interest rates. The  Black-Scholes  values
     were calculated  using the following  assumptions:  (a) risk-free  interest
     rate of 2.27%;  (b) a dividend yield of 0.00%;  (c) an expected life of the
     option  after  vesting of 2.72  years;  and (d) an expected  volatility  of
     80.33%.
(3)  Mr. Brucker's options vested and became exercisable  immediately upon grant
     in July 2001.

(4)  Dr. Sucher's employment terminated in July 2001.

                                       99
<PAGE>
OPTION HOLDINGS

     The following table represents certain  information  respecting the options
held by the listed  officers as of June 30, 2002.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTIONS VALUES

<TABLE>
<CAPTION>
                                                                NUMBER OF SECURITIES
                                                               UNDERLYING UNEXERCISED              VALUE OF UNEXERCISED
                                                                     OPTIONS AT                    IN-THE-MONEY OPTIONS
                       SHARES ACQUIRED                           FISCAL YEAR-END(#)               AT FISCAL YEAR-END (2)
                       ON EXERCISE OF         VALUE         ----------------------------      ------------------------------
                       STOCK OPTIONS(#)     REALIZED(1)     EXERCISABLE    UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
                       ----------------     -----------     -----------    -------------      -----------      -------------
<S>                 <C>                      <C>            <C>            <C>                <C>              <C>
John S. Banas III              --                  --          144,167        103,333           $296,868         $277,232
Jack E. Brucker                --                  --          356,000         50,000           $587,750         $ 80,500
Randall L. Harmsen             --                  --           40,000         40,000           $104,100         $128,800
Barry D. Landon                --                  --           84,934         59,166           $117,335         $171,365
Dr. Michel Sucher          25,000            $ 32,000               --             --           $     --         $     --
</TABLE>

----------
(1)  Calculated  based on the market price at exercise  multiplied by the number
     of  options  exercised  less  the  total  exercise  price  of  the  options
     exercised.
(2)  Calculated based on $3.61,  which was the closing sales price of our common
     stock as quoted on the Nasdaq Small Cap Market on June 28, 2002, multiplied
     by the number of applicable  shares  in-the-money  less the total  exercise
     price.

EMPLOYMENT AGREEMENTS

     Effective  July 1, 2001, we entered into an employment  agreement with Jack
E. Brucker,  our President and Chief  Executive  Officer,  for a five-year  term
expiring  July  1,  2006,  which  automatically   renews  for  one-year  periods
thereafter.  Mr. Brucker receives a base salary of $600,000, and participates in
our stock option  plans and other  generally  available  benefit  programs.  Mr.
Brucker also received a signing  bonus of $200,000,  50% of which was payable to
him on July 1, 2001,  and 50% of which was payable on July 1, 2002. In addition,
Mr.  Brucker  participates  in our  management  incentive  program that provides
bonuses to executive  officers and other  members of  management  based upon our
achieving  certain  financial and operating  goals as well as the achievement of
individual objectives established for each participant. Mr. Brucker's employment
agreement  provides that should we terminate his  employment  agreement  without
cause, should he terminate his employment  agreement for good reason,  should we
not  renew  his  employment  agreement  without  cause,  should he not renew his
employment  agreement  for good  reason,  or should  we  propose  to modify  his
employment  agreement in a manner  which gives him good reason to terminate  the
employment  agreement,  he will receive his then effective base salary and other
benefits  provided  by  the  employment  agreement   immediately  following  the
effective date of termination of employment for a period equal to the greater of
(i) two years, or (ii) five years minus the number of days between July 1, 2001,
and the effective date of termination of employment.  If Mr. Brucker  terminates
his employment  agreement without good reason (and for reasons other than health
considerations),  he will not receive any  severance  benefits and will pay us a
sum equal to the net base salary  received by him during the period equal to the
greater of (i) two years preceding termination of employment, or (ii) five years
minus the  number of days  between  July 1, 2001 and the  effective  date of the
termination of employment.

     Under the  employment  agreement,  Mr.  Brucker  has  agreed not to compete
against us after the termination of the employment  agreement for a period equal
to the  greater  of (i) two years,  or (ii) five years  minus the number of days

                                      100
<PAGE>
between July 1, 2001 and the effective  date of the  termination  of employment.
Mr.  Brucker may elect to shorten  such  non-compete  period to not less than 12
months.  Upon such election we will no longer be required to pay Mr. Brucker any
severance benefits.  In addition, if Mr. Brucker is receiving severance benefits
under the employment agreement and he elects to solicit clients,  employees,  or
otherwise  competes with us at any time after his  termination  of employment or
discloses  confidential  information,  we will no longer be obligated to pay Mr.
Brucker any severance benefits.

     In April 2001,  we entered into an  employment  agreement  with Mr. John S.
Banas III to become our Senior Vice President and General Counsel for a two-year
term expiring April 23, 2003,  which  automatically  renews for one-year periods
thereafter.  Under Mr.  Banas'  employment  agreement,  he is to  receive a base
salary of $240,000, and is entitled to participate in our stock option plans and
our other generally  available benefit  programs.  Mr. Banas is also entitled to
participate  in our  management  incentive  program  that  provides  bonuses  to
executive  officers and other  members of  management  based upon our  achieving
certain  financial and operating  goals as well as the achievement of individual
objectives  established for each participant.  Mr. Banas'  employment  agreement
provides that should we terminate his employment agreement without cause, should
he terminate his employment  agreement for good reason,  should we not renew his
employment agreement without cause, should he not renew his employment agreement
for good reason,  or should we propose to modify his  employment  agreement in a
manner which gives him good reason to terminate  the  employment  agreement,  he
will receive his then effective  base salary and other benefits  provided by the
employment agreement  immediately following the effective date of termination of
employment  for a period of  twenty-four  months.  If Mr. Banas  terminates  his
employment  agreement  without  good reason,  he will not receive any  severance
benefits.

     Under the employment agreement, Mr. Banas has agreed not to compete against
us after the  termination of the employment  agreement for a period of 24 months
after the effective date of the  termination of employment.  Mr. Banas may elect
to shorten such non-compete  period to 12 months.  Upon such election we will no
longer be required to pay Mr. Banas any severance benefits.  In addition, if Mr.
Banas is receiving  severance  benefits  under the  employment  agreement and he
elects to solicit clients,  employees, or otherwise competes with us at any time
after his termination of employment or discloses  confidential  information,  we
will no longer be obligated to pay Mr. Brucker any severance benefits.

     In June 2000, we entered into an employment  agreement with Mr. Harmsen for
a term expiring  December 31, 2000,  which  agreement  automatically  renews for
one-year periods thereafter. Mr. Harmsen receives a base salary of $189,615, and
is entitled to  participate in our management  incentive  program,  stock option
plans and other generally available benefit programs.  Mr. Harmsen's  employment
agreement provides that should his employment  agreement terminate or fail to be
renewed  without cause or for good reason,  as defined,  or should we propose to
modify his  employment  agreement  in a manner  which  gives him good  reason to
terminate the  employment  agreement,  he will receive his base salary and other
benefits for 12 months.  If Mr.  Harmsen  terminates  his  employment  agreement
without good reason, he will not receive any severance benefits. Mr. Harmsen has
agreed  not to  compete  against us for 24 months  after the  effective  date of
termination.

     An employment  agreement  with Dr. Sucher  expired in December 2000. Due to
Dr.  Sucher's  termination  on July 12, 2001,  Dr. Sucher is entitled to receive
certain severance benefits, including base salary and other benefits provided by
the  agreements  for one year from the date of  termination.  In  addition,  his
employment  agreement  provides for us to indemnify him for certain  liabilities
arising from actions taken within the scope of employment.

                                      101
<PAGE>
     Change of control  agreements  entered into by Messrs.  Brucker,  Banas and
Harmsen  provide  that in the event of a change  of  control  and the  surviving
entity or individuals in control do not offer such persons employment, terminate
their employment  without cause, or such persons  terminate their employment for
good reason, such persons will receive a lump sum equal to (A) 150% (200% in the
case of Messrs.  Brucker and Banas) of (i) their applicable  annual base salary,
and (ii) the amount of incentive compensation paid or payable to them during the
calendar year preceding the calendar year in which the change of control occurs,
plus (B) the full amount of any  payments  due under such  employees  employment
agreement.  In addition,  each  executive  would be entitled to receive  certain
benefits, including the acceleration of exercisability of their stock options or
the  payment  of the  value of such  stock  options  in the  event  they are not
accelerated or replaced with  comparable  options.  Pursuant to the terms of the
change of control  agreements,  the health and other benefits received under the
change of control  agreement by such  executive will be reduced or eliminated to
the  extent  such  benefits  are  received  under  the  executive's   employment
agreement.  In addition, the change of control agreements place a ceiling on the
aggregate amount of benefits any executive may receive under the agreement. Each
executive  will receive an amount  equal to 2.99 times the amount of  annualized
includable  compensation  received  by the  executive  as  determined  under the
Internal  Revenue  Code.  Any  payments  received  under the  change of  control
agreement may be reduced by amounts we pay such executive under their respective
employment agreements.

     For purposes of the change of control agreements,  "good reason" includes a
reduction of their  respective  duties and/or  salary or the surviving  entity's
failure to assume their respective  employment and change of control agreements.
For purposes of the change of control agreements, a "change of control" includes
(i) the acquisition of beneficial ownership by certain persons,  acting alone or
in concert with others,  of 30% or more of the combined voting power of our then
outstanding  voting  securities;  (ii)  during any  two-year  period,  our Board
members at the  beginning of such period cease to constitute at least a majority
thereof (except that any new Board member approved by at least two-thirds of the
Board members then still in office,  who were directors at the beginning of such
period, is considered to be a member of the current Board); or (iii) approval by
our   stockholders   of  certain   reorganizations,   mergers,   consolidations,
liquidations, or sales of all or substantially all of our assets.

COMPENSATION OF DIRECTORS

     Officers  who  serve  on the  Board  of  Directors  receive  no  additional
compensation.  We paid a  director's  fee in  fiscal  2002 to Mr.  Clement,  our
Chairman of the Board of Directors,  of $45,000 plus  reimbursement for expenses
for each Board or committee meeting he attended.  We pay all other  non-employee
Board  members,  with the  exception  of Mr.  Witzeman,  an annual  retainer  of
$15,000.  Non-employee directors,  with the exception of Mr. Jekel, also receive
$1,000 for each Board meeting attended, $500 for each Board meeting participated
in telephonically,  $500 for each committee meeting attended,  and $250 for each
committee meeting participated in telephonically. We also pay $2,500 annually to
any  non-employee  chairman of each of the committees of the Board of Directors.
Under the terms of our 1992 Stock Option Plan,  non-employee  directors  receive
(i) stock  options to purchase  10,000  shares upon their first  election to the
Board of  Directors  and options to purchase  2,500 shares at the meeting of the
Board of Directors held  immediately  after the annual  meeting of  stockholders
(except that the Chairman of the Board  receives  stock options to acquire 5,000
shares),  and (ii) each year  each  non-employee  Board  member  receives  stock
options  to  acquire a number of shares  equal to 1,000  shares  for each  $0.05
increase in our earnings per share over the previous  fiscal year,  subject to a
maximum of 5,000 shares of stock per non-employee  Board member.  Messrs.  Jekel
and Witzeman  receive  compensation  for  consulting  services,  which  includes
serving  on the Board of  Directors.  See  "Certain  Relationships  and  Related
Transactions" and "Compensation Committee Interlocks and Insider Participation."
In fiscal 2002, we granted to the following  individuals options to purchase the
following shares of common stock as consideration to serve as a director:  5,000
to Mr. Clement, and 2,500 to each of Messrs.  Jekel, Turner,  Walker,  Witzeman,
and Ms.  Carpenter.  The options have an exercise  price of $0.44 per share.  In
addition, in October 2002, we granted options to purchase 5,000 shares of common
stock to each of the following non-employee Board members in connection with our
earnings  per share over the  previous  fiscal  year:  Messrs.  Clement,  Jekel,
Turner, Walker,  Witzeman, and Ms. Carpenter. The options have an exercise price
of $2.24 per share.

                                      102
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     During the fiscal  year ended June 30,  2002,  our  Compensation  Committee
consisted of Messrs. Walker and Turner and Ms. Carpenter, currently directors of
the Company.

                                      103
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

     The  following  table  sets  forth  certain  information  with  respect  to
beneficial  ownership  of our  common  stock  on  October  24,  2002 by (i) each
director;  (ii) the  executive  officers  set forth in the Summary  Compensation
Table  under the section  entitled  "Executive  Compensation;"  (iii) all of our
directors and executive officers as a group; and (iv) each person known by us to
be the beneficial owner of more than 5% of our common stock.

                                                     AMOUNT
                                                  BENEFICIALLY
                                                     OWNED
NAME OF BENEFICIAL OWNER                            (1)(2)(3)        PERCENT (2)
------------------------                            ---------        -----------

Jack E. Brucker                                     381,000 (4)          2.3%
John S. Banas, III                                  235,313 (4)          1.4%
Mary Anne Carpenter                                  25,000 (4)             *
Cor J. Clement, Sr.                                  43,250 (4)             *
Randall L. Harmsen                                   97,427 (4)             *
Louis G. Jekel                                      137,213 (5)             *
Barry D. Landon                                     118,268 (4)             *
Dr. Michel Sucher                                    58,546 (4)             *
William C. Turner                                    40,500 (4)             *
Henry G. Walker                                      27,500 (4)             *
Louis A. Witzeman                                   157,356 (6)          1.0%
Executive officers and directors
 as a group (9 persons)                           1,321,373              7.7%

* Less than 1%

----------
(1)  Except  as  indicated,   and  subject  to  community   property  laws  when
     applicable,  the  persons  named in the table  above  have sole  voting and
     investment  power  with  respect  to all  shares of common  stock  shown as
     beneficially owned by them.
(2)  The percentages shown are calculated based upon 16,138,195 shares of common
     stock  outstanding  on October 24, 2002. The number and  percentages  shown
     include the shares of common  stock  actually  owned as of October 24, 2002
     and the shares of common  stock that the  identified  person or group had a
     right to acquire within 60 days after October 24, 2002. In calculating  the
     percentage  ownership,  shares that the identified  person or group had the
     right to acquire  within 60 days after  October  24,  2002 are deemed to be
     outstanding  for the  purposes of  computing  the  percentage  of shares of
     common  stock  owned by such  person  or  group,  but are not  deemed to be
     outstanding for the purpose of computing the percentage of shares of common
     stock owned by any other stockholder.
(3)  Excludes the following fully vested shares of common stock held by the ESOP
     for the benefit of the following  individuals:  2,303 shares for Mr. Landon
     and 1,097 for Dr. Sucher. These persons have sole voting power with respect
     to the shares held in their account by the ESOP.
(4)  Includes  shares of common stock  issuable  upon  exercise of stock options
     with respect to the following  persons:  Mr. Brucker,  356,000 shares;  Mr.
     Banas,  220,834 shares; Ms. Carpenter,  25,000 shares; Mr. Clement,  31,250
     shares; Mr. Harmsen, 60,000 shares; Mr. Landon, 118,268 shares; Dr. Sucher,
     24,461 shares; Mr. Turner, 32,500 shares; and Mr. Walker, 27,500 shares.
(5)  Includes  85,963  shares of common  stock,  of which 74,299 are held by the
     Louis G. Jekel Trust dated July 25, 1996.  Also  includes  51,250 shares of
     common stock issuable upon exercise of stock options.
(6)  Includes  106,106  shares,  of which  36,062  shares  are held by the Louis
     Witzeman, Jr. Family Investments Limited Partnership, and 70,044 shares are
     held by the Witzeman  Family Trust.  Also includes  51,250 shares of common
     stock issuable upon exercise of stock options.

                                      104
<PAGE>
EQUITY COMPENSATION PLAN INFORMATION

     The following  table  represents  securities  authorized for issuance under
equity compensation plans at June 30, 2002.

                    EQUITY COMPENSATION PLAN INFORMATION (1)

<TABLE>
<CAPTION>
                                          NUMBER OF SECURITIES
                                            TO BE ISSUED UPON          WEIGHTED-AVERAGE          NUMBER OF SECURITIES
                                         EXERCISE OF OUTSTANDING       EXERCISE PRICE OF       REMAINING AVAILABLE FOR
                                                OPTIONS               OUTSTANDING OPTIONS     FUTURE ISSUANCE UNDER PLAN
                                         -----------------------      -------------------     --------------------------
<S>                                      <C>                          <C>                     <C>
Equity compensation plan
approved by stockholders:                       3,531,732                    $11.02                    1,534,048

Equity compensation plan not
approved by stockholders:                       1,667,246                    $ 0.97                      216,246
                                               ----------                    ------                   ----------
Total                                           5,198,978                    $ 7.79                    1,750,294
                                               ==========                    ======                   ==========
</TABLE>

----------
(1)  We maintain an Employee  Stock  Purchase Plan ("ESPP")  under which we have
     issued 1,176,832 shares of our common Stock to our employees, and currently
     have 973,168  shares of our common  stock  available  for future  issuance.
     Under the ESPP,  the sales price of the shares of our common stock is equal
     to 85% of the  closing  price of the  stock on the first day or last day of
     the offering  period or the nearest prior day on which trading  occurred on
     the Nasdaq  SmallCap  Market.  The ESPP has been approved by the holders of
     our common stock.

     For a description of the 2000 Stock Option Plan,  refer to note 13 of Notes
to our Consolidated Financial Statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     We paid  approximately  $138,000  during the year  ended June 30,  2002 for
legal  services to Jekel & Howard,  of which Lou Jekel, a member of our Board of
Directors, is a principal.

     Louis A. Witzeman,  a member of our Board of Directors,  is our founder and
served  as our  Chief  Executive  Officer  until  1980.  Mr.  Witzeman  was paid
approximately  $46,000 during the year ended June 30, 2002 under four leases for
fire and  ambulance  stations.  These leases may be cancelled by us at any time.
Mr.  Witzeman  received  $89,000  during the fiscal year ended June 30, 2002 for
fire protection and EMS advisory and consulting  services and for serving on the
Board of Directors. We also provide Mr. Witzeman with an automobile for personal
use.

     We believe that the related party  transactions  listed above were provided
on terms no less  favorable to us than could have been obtained  from  unrelated
firms or third  parties.  All future  transactions  between us and our officers,
directors,  and  principal  stockholders  are  expected  to be on  terms no less
favorable  to us than  could be  obtained  from  unaffiliated  persons  and will
require the approval of our independent directors.

ITEM 14. CONTROLS AND PROCEDURES

     Not Applicable.

                                      105
<PAGE>
                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  Financial Statements and Schedules

                                                                            PAGE
                                                                            ----
          (i)  Financial Statements

               (1)  Report of Independent Accountants........................ 48
                    Report of Independent Public Accountants................. 49
               (2)  Consolidated Financial Statements
                    Consolidated Balance Sheet at June 30, 2002 and 2001..... 51
                    Consolidated Statement of Operations for the Years
                      Ended June 30, 2002, 2001, and 2000.................... 52
                    Consolidated Statement of Changes in Stockholders'
                      Equity (Deficit) for the Years Ended June 30, 2002,
                      2001, and 2000......................................... 53
                    Consolidated Statement of Cash Flows for the Years
                      Ended June 30, 2002, 2001, and 2000.................... 54
                    Notes to Consolidated Financial Statements............... 55

        (ii)   Financial Statement Schedules
                    All  schedules  have  been  omitted  on the  basis  that the
                    required   information   is   included   in  the   Notes  to
                    Consolidated  Financial Statements or because such schedules
                    are not otherwise applicable.

       (iii)   Exhibits

                    See index to exhibits below.

     (b)  Reports on Form 8-K:

          We filed the  following  report on Form 8-K during the  quarter  ended
          June 30, 2002:

          Report  on Form 8-K  filed  with the  Commission  on  April  18,  2002
          relating to a notice  received from the Nasdaq Listing  Qualifications
          Panel indicating it had determined that the Company's  securities will
          continue to be listed on the Nasdaq  SmallCap  Market via an exception
          to  the  bid   price   and  net   income/stockholders'   equity/market
          capitalization requirements.

     (c)  Exhibits

      EXHIBIT NO.                  DESCRIPTION OF EXHIBIT
      -----------                  ----------------------

          2         Plan and Agreement of Merger and Reorganization, dated as of
                    April 26, 1993 (1)

         3.1(a)     Second  Restated   Certificate  of   Incorporation   of  the
                    Registrant  filed with the Secretary of State of Delaware on
                    January  18,  1995 (6)

         3.1(b)     Rights  Agreement  dated as of August 23,  1995  between the
                    Registrant  and  American  Securities  Transfer,  Inc.,  the
                    Rights Agent (7)

         3.2        Amended and Restated Bylaws of the Registrant (1)

                                      106
<PAGE>
      EXHIBIT NO.                  DESCRIPTION OF EXHIBIT
      -----------                  ----------------------

         4.1        Specimen  Certificate  representing  shares of Common Stock,
                    par value $.01 per share (1)

         4.2        Indenture  dated as of March  16,  1998,  by and  among  the
                    Company,  the subsidiaries acting as Guarantors thereto, and
                    the First National Bank of Chicago, as Trustee (10)

         4.3        Form of Global Note (included in Exhibit 4.2) (10)

         4.4        Registration  Rights  Agreement dated March 11, 1998, by and
                    among Bear Stearns & Co.  Inc.,  Salomon  Brothers  Inc, SBC
                    Warburg Dillon Reed Inc., First Union Capital  Markets,  the
                    Company,   and  certain  subsidiaries  of  the  Company,  as
                    Guarantors (10)

        10.3(a)     1989  Employee  Stock  Option  Plan of  Registrant,  adopted
                    August 10, 1989, as amended (1)

        10.3(b)     Third  Amendment to the 1989  Employee  Stock Option Plan of
                    Registrant, dated February 4, 1994 (2)

        10.3(c)     Fourth  Amendment to 1989 Employee Stock Option Plan,  dated
                    August 25, 1994 (3)

        10.4        Form of Stock  Option  Agreement  pursuant to 1989  Employee
                    Stock Option Plan of Registrant (1)

        10.5        Amended and Restated  1992 Stock Option Plan of  Registrant,
                    amended through October 15, 1998 (13)

        10.6        Forms of Stock Option Agreements pursuant to the Amended and
                    Restated 1992 Stock Option Plan of Registrant (13)

        10.7        2000  Non-Qualified  Stock Option Plan,  adopted  August 11,
                    2000 (22)

        10.15       Forms of Conditional  Stock Grant and Repurchase  Agreements
                    by and between Registrant and each of its executive officers
                    and  directors,  dated May 14, 1993,  November 1, 1994,  and
                    December 1, 1997 (1)

        10.16(d)    Form of Change  of  Control  Agreement  by and  between  the
                    Registrant and the following executive officers: (i) Jack E.
                    Brucker,  dated  November 24, 1997,  (ii) R. Bruce  Hillier,
                    effective  October 28,  1997,  (iii) Dr.  Michel A.  Sucher,
                    effective  December  1,  1995,  and (iv) John S.  Banas III,
                    effective September 27, 2002 (12)

        10.16(g)    Employment  Agreement by and between  Registrant and John B.
                    Furman effective July 29, 1999 (14)

        10.16(h)    Change of Control  Agreement by and between  Registrant  and
                    John B. Furman, effective November 1, 1999 (14)

                                      107
<PAGE>
      EXHIBIT NO.                  DESCRIPTION OF EXHIBIT
      -----------                  ----------------------

        10.16(l)    Employment  Agreement by and between the Registrant and Jack
                    E. Brucker, effective April 19, 2001 (21)

        10.16(m)    Form of Employment  Agreement by and between the  Registrant
                    and each of the following executive officers: (i) Dr. Michel
                    A.  Sucher,  effective  November 7, 1997,  and (ii) R. Bruce
                    Hillier, effective October 20, 1997 (15)

        10.16(n)    Employment  Agreement by and between the Registrant and John
                    S. Banas III, effective April 23, 2001 (21)

        10.17       Form of Indemnity  Agreement by and between  Registrant  and
                    each of its officers  and  directors,  dated in April,  May,
                    August and November  1993, as of October 13, 1994, and as of
                    September 25, 1998 (1)

        10.18(a)    Amended and Restated Employee Stock Ownership Plan and Trust
                    of the Registrant, effective July 1, 1997 (13)

        10.21       Retirement  Savings  Value  Plan  401(k) of  Registrant,  as
                    amended, dated July 1, 1990 (1)

        10.22       Master Lease Agreement by and between Plazamerica,  Inc. and
                    the Registrant, dated January 30, 1990 (1)

        10.36       Employee Stock Purchase  Plan, as amended  through  November
                    20, 1997 (12)

        10.37(a)    Loan  and   Security   Agreement   by  and   among  the  CIT
                    Group/Equipment Financing, Inc. and the Registrant, together
                    with its subsidiaries,  dated December 28, 1994, and related
                    Promissory Note and Guaranty Agreement (3)

        10.37(b)    Form of Loan and Security  Agreement by and among Registrant
                    and CIT Group/Equipment Financing, Inc. first dated February
                    25,  1998 and  related  form of  Guaranty  and  Schedule  of
                    Indebtedness and Collateral (12)

        10.45       Amended and Restated Credit  Agreement dated as of March 16,
                    1998,  by and among the Company as borrower,  certain of its
                    subsidiaries as Guarantors, the lenders referred to therein,
                    and First Union National  Bank, as agent and as lender,  and
                    related Form of Amended and Restated  Revolving Credit Note,
                    Form  of  Subsidiary  Guarantee   Agreement,   and  Form  of
                    Intercompany Subordination Agreement (11)

        10.54       Purchase  Agreement dated January 16, 1998 and Complementary
                    Agreement   dated   March  26,  1998   between   Rural/Metro
                    Corporation  and Messrs.  Horacio  Artagaueytia,  Jose Mateo
                    Campomar, Alberto Fluerquin, Carlos Mezzera, Renato Ribeiro,
                    Gervasio  Reyes,  and Carlos  Arturo  Delmiro  Marfetan with
                    respect to the stock of Peimu S.A., Recor S.A., Marlon S.A.,
                    and Semercor S.A (9)

        10.55       Provisional  Waiver  and  Standstill  Agreement  dated as of
                    March 14, 2000 (16)

        10.56       First   Amendment  to  Provisional   Waiver  and  Standstill
                    Agreement dated as of April 13, 2000 (16)

                                      108
<PAGE>
      EXHIBIT NO.                  DESCRIPTION OF EXHIBIT
      -----------                  ----------------------

        10.57       Second  Amendment  to  Provisional   Waiver  and  Standstill
                    Agreement dated as of July 14, 2000 (17)

        10.59       Third   Amendment  to  Provisional   Waiver  and  Standstill
                    Agreement dated as of October 16, 2000 (18)

        10.60       Fourth  Amendment  to  Provisional   Waiver  and  Standstill
                    Agreement dated as of January 31, 2001 (19)

        10.61       Fifth   Amendment  to  Provisional   Waiver  and  Standstill
                    Agreement dated as of April 23, 2001 (20)

        10.62       Sixth   Amendment  to  Provisional   Waiver  and  Standstill
                    Agreement dated as of August 1, 2001 (23)

        10.63       Seventh  Amendment  to  Provisional  Waiver  and  Standstill
                    Agreement dated as of December 4, 2001 (24)

        21          Subsidiaries of Registrant*

        23          Consent of PricewaterhouseCoopers LLP*

        99.1        Section 906 Certification of Jack E. Brucker**

        99.2        Section 906 Certification of Randall L. Harmsen**

----------
*    Previously filed.
**   Filed herewith.

(1)  Incorporated by reference to the Registration  Statement on Form S-1 of the
     Registrant  (Registration  No.  33-63448)  filed May 27, 1993 and  declared
     effective July 15, 1993.

(2)  Incorporated by reference to the Registration  Statement on Form S-1 of the
     Registrant  (Registration  No.  33-76458) filed March 15, 1994 and declared
     effective May 5, 1994.

(3)  Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about May 12, 1995.

(4)  Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with  the  Commission  on or  about  April  7,  1995,  as  amended  by  the
     Registrant's  Form 8-K/A Current Reports filed on or about May 15, 1995 and
     August 1, 1995.

                                      109
<PAGE>
(5)  Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about May 19, 1995.

(6)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4 (Registration No. 33-88172) filed with the Commission on December
     30, 1994 and declared effective January 19, 1995.

(7)  Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on or about August 28, 1995.

(8)  Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about February 17, 1998.

(9)  Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with  the  Commission  on or  about  April  1,  1998,  as  amended  by  the
     Registrant's Form 8-K/A Current Report filed on or about June 5, 1998.

(10) Incorporated by reference to the Registration  Statement on Form S-4 of the
     Registrant  (Registration  No. 333-51455) filed April 30, 1998 and declared
     effective on May 14, 1998.

(11) Incorporated by reference to Amendment No. 1 to the Registration  Statement
     on Form  S-4 of the  Registrant  (Registration  No.  333-51455)  filed  May
     11,1998 and declared effective on May 14, 1998.

(12) Incorporated  by  reference  to the  Registrant's  Form 10-K filed with the
     Commission on or about September 29, 1998.

(13) Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about November 10, 1998.

(14) Incorporated by reference to the  Registrant's  Form 10-Q Quarterly  Report
     filed with the Commission on or about November 15, 1999.

(15) Incorporated by reference to the  Registrant's  Form 10-K Annual Report for
     the year  ended  June  30,  1996  filed  with  the  Commission  on or about
     September 30, 1996 (originally filed in that Report as Exhibit 10.16(a)).

(16) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on April 14, 2000.

(17) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on July 28, 2000.

(18) Incorporated  by reference  to the  Registrant's  Form 10-Q Current  Report
     filed with the Commission on October 16, 2000.

(19) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on February 2, 2001.

(20) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on May 2, 2001.

(21) Incorporated  by  reference  to the  Registrant's  Form 10-Q filed with the
     Commission on May 15, 2001.

(22) Incorporated  by  reference  to  the  Registrant's  Form  S-8  Registration
     Statement filed with the Commission on May 21, 2001.

(23) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on August 9, 2001.

(24) Incorporated by reference to the Registrant's Form 8-K Current Report filed
     with the Commission on January 22, 2002.

                                      110
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirement  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       RURAL/METRO CORPORATION

                                       By: /s/ JACK E. BRUCKER
                                           -------------------------------------
                                           Jack E. Brucker
                                           President and Chief Executive Officer
October 28, 2002

                                      111
<PAGE>
                                  CERTIFICATION

I, Jack E. Brucker, certify that:

    1. I  have  reviewed  this  annual  report  on  Form  10-K  of   Rural/Metro
       Corporation;

    2. Based on my  knowledge,  this  annual  report does not contain any untrue
       statement of a material fact or omit to state a material  fact  necessary
       to make the statements  made, in light of the  circumstances  under which
       such  statements  were made,  not  misleading  with respect to the period
       covered by this annual report; and

    3. Based on my knowledge,  the  financial  statements,  and other  financial
       information  included  in  this  annual  report,  fairly  present  in all
       material respects the financial condition, results of operations and cash
       flows of the  registrant  as of, and for,  the periods  presented in this
       annual report.

Date: October 28, 2002

                                        /s/ JACK E. BRUCKER
                                        ----------------------------------------
                                        President and Chief Executive Officer
                                        Rural/Metro Corporation
<PAGE>
                                  CERTIFICATION

I, Randall L. Harmsen, certify that:

    1. I  have  reviewed  this  annual  report  on  Form  10-K  of   Rural/Metro
       Corporation;

    2. Based on my  knowledge,  this  annual  report does not contain any untrue
       statement of a material fact or omit to state a material  fact  necessary
       to make the statements  made, in light of the  circumstances  under which
       such  statements  were made,  not  misleading  with respect to the period
       covered by this annual report; and

    3. Based on my knowledge,  the  financial  statements,  and other  financial
       information  included  in  this  annual  report,  fairly  present  in all
       material respects the financial condition, results of operations and cash
       flows of the  registrant  as of, and for,  the periods  presented in this
       annual report.

Date: October 28, 2002

                                        /s/ RANDALL L. HARMSEN
                                        ----------------------------------------
                                        Vice President of Finance
                                        (Principal Financial Officer and
                                        Principal Accounting Officer)
                                        Rural/Metro Corporation